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Criticism of fractional reserve banking

2014-02-07T00:41:45Z

Karmaisking: /* Main criticisms */

{{main|Fractional-reserve banking}}
'''Criticisms of [[fractional reserve banking]]''' and [[central bank|central banking]] have been put forward from a variety of perspectives, although the most vigorous and sustained criticism now comes from libertarians and anarcho-capitalists such as economists [[Jesús Huerta de Soto]] and [[Jörg Guido Hülsmann]], American politician [[Ron Paul]], and commentators such as historian Thomas Woods, Jim Grant of ''Grant's Interest Rate Observer'' and former US Budget Director David Stockman.<ref>[http://www.philippbagus.com/archivos/Working%20paper%20deposits%20loans%20and%20banking%20bagus%20howden%20block.pdf Deposits, Loans and Banking: Clarifying the Debate], Philipp Bagus, David Howden and Walter Block</ref><ref>[http://blog.mises.org/16521/fantastic-speech-by-de-soto/ Jesús Huerta de Soto Speech]</ref><ref>[http://mises.org/daily/5174/Life-with-the-Fed-Sunshine-and-Lollipops Life with the Fed], Thomas Woods</ref><ref>[http://mises.org/daily/5146/Over-to-You-H-Parker-Willis Over to you H Parker Willis], Jim Grant</ref><ref>[http://www.youtube.com/watch?v=1VcN_Z6L0jM&feature=player_embedded#at=609 James Grant Interview with James Turk]</ref><ref>[http://mises.org/daily/5113/The-End-of-Sound-Money-and-the-Triumph-of-Crony-Capitalism The End of Sound Money and the Triumph of Crony Capitalism], David Stockman, Henry Hazlitt Memorial Lecture, Austrian Scholar's Conference</ref><ref>[http://www.lewrockwell.com/orig11/stockman6.1.1.html Crony Capitalism Strikes Again], David Stockman</ref><ref>[http://www.lewrockwell.com/orig11/stockman6.1.1.html David Stockman Interview - Blame the Fed]</ref><ref>[http://www.zerohedge.com/news/2013-04-03/david-stockman-keynesian-endgame The Keynesian Endgame], David Stockman</ref><ref>[http://www.lewrockwell.com/2013/10/david-stockman/its-sundown-in-america/ Sundown in America], David Stockman</ref><ref>[http://www.lewrockwell.com/rockwell/imperative-sound-money.html The Social Imperative of Sound Money], Lew Rockwell</ref><ref>[http://lewrockwell.com/stockman/stockman16.1.html The Forgotten Cause of Sound Money]</ref><ref>[http://mises.org/daily/6397/The-Keynesian-Endgame The Keynesian Endgame]</ref> Most in the mainstream (both on the left and right) remain silent on the issue of fractional reserve banking and central banking,<ref>[http://www.lewrockwell.com/lewrockwell-show/2008/10/31/58-americas-slow-motion-fascist-coup/ Naomi Wolf Interview with Lew Rockwell], Lew Rockwell: "I've frankly never understood why people on the Left are ''not'' upset about the Federal Reserve. If you look back to the history..." Wolf: "We probably don't understand it!" Lew Rockwell:"...but you know the founding of the Fed before the law was, you know, with bipartisan support signed in 1913, the Federal Reserve Act was drafted at J.P. Morgan's private club - it's sounds like a conspiracy story, but I guess it sort of is - on Jekyll Island Georgia...Big bankers wrote the Federal Reserve Act for their benefit!"</ref><ref>[http://www.lewrockwell.com/rockwell/imperative-sound-money.html The Social Imperative of Sound Money], Lew Rockwell: "I find it sickening that there are so few voices outside the Austrian School that will stand up to this policy [of fiat money, fractional reserve banking and central banking]."</ref> although past critics have included mainstream economists such as Irving Fisher,<ref>''100% Money'', Irving Fisher</ref><ref>[http://en.wikipedia.org/wiki/A_Program_for_Monetary_Reform ''A Program for Monetary Reform'']</ref> and [[Milton Friedman]].<ref>Friedman, M., A Program for Monetary Stability, New York, Fordham University Press, 1960, pp. 65</ref><ref>[http://mises.org/daily/3108 The Social Imperative of Sound Money], Lew Rockwell: "I find it sickening that there are so few voices outside the [[Austrian School]] that will stand up to this policy (of [[fiat money]]/[[fractional reserve banking]]/[[central bank]]ing)".</ref> Within the economics profession, most criticisms are from the [[Austrian School]].<ref>[http://mises.ca/posts/blog/illogic-in-fractional-reserve-banking/ Illogic in Fractional Reserve Banking], James E. Miller</ref><ref>[http://mises.org/media/4014 The Economics of Legal Tender Laws], [[Jorg Guido Hulsmann]] (includes detailed commentary on [[fractional reserve banking|FRB]])</ref><ref>[http://mises.org/store/Money-Bank-Credit-and-Economic-Cycles-P290C0.aspx Money, Bank Credit and Economic Cycles], Jesus Huerta de Soto, Mises Institute ISBN: 978-1-933550-39-8</ref><ref>[http://mises.org/store/Meltdown-P557.aspx ''Meltdown''], Tom Woods, Regnery Press ISBN: 9781596985872</ref><ref>[http://www.marketoracle.co.uk/Article25212.html The Faults of FRB], Thorsten Polleit</ref> There are also critics from outside the economics profession who advocate [[monetary reform]].<ref>[http://www.nakedcapitalism.com/2010/12/matt-stoller-end-this-fed.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capitalism%29 End This Fed], Matt Stoller</ref><ref>For an example of the writings of these groups, see [http://www.bilderberg.org/monref.htm this] contribution from Bilderberg.org</ref><ref>[http://www.youtube.com/watch?v=VMngK0t5WkY Max Keiser]</ref><ref>[http://www.marketoracle.co.uk/Article28533.html The Global Debt Crisis], Ellen Hodgson Brown</ref><ref>[http://www.mises.org/daily/6358/The-Backroom-World-of-Central-Banking Lords of Finance]</ref>

==Terminology==

Critics of fractional reserve banking and the related fiat paper monetary system may refer to it by the term '''debt-based monetary system''',<ref>[http://www.thenewamerican.com/economy/economics/item/14238-obama%E2%80%99s-trillion-dollar-coin-exposes-federal-reserve-scam Obama’s Trillion-Dollar Coin Exposes Federal Reserve Scam], Alex Newman, ''New American''</ref><ref>[http://mises.org/daily/4631 Is Our Money Based On Debt?], Robert Murphy</ref><ref name="speech">For an example of the public use of the term, see the [http://www.prosperityuk.com/prosperity/articles/earl.html speech] of the Earl of Caithness in the House of Lords on 5 March 1997</ref> or '''credit-based monetary system'''.<ref>For example of the public use of the term, see this speech given by [[Zhou Xiaochuan]], [http://www.bis.org/review/r090402c.pdf Reform the monetary system], 23 March 2009 (BIS), and this article, [http://www.nakedcapitalism.com/2009/02/steve-keen-roving-cavaliers-of-credit.html ''Roving Cavaliers of Credit''] by Steve Keen (with commentary by Yves Smith)</ref><ref>[http://globaleconomicanalysis.blogspot.com/2010/09/myths-about-whats-economically.html Myths], MISH</ref><ref>[http://globaleconomicanalysis.blogspot.com/2010/07/are-we-trending-towards-deflation-or-in.html Deflation], MISH</ref><ref>[http://globaleconomicanalysis.blogspot.com/2008/04/deflation-in-fiat-regime.html Deflation In A Fiat Regime?], MISH</ref> They may also refer to money created in parallel with debt as '''debt money''' or '''endogenous money''', reflecting the fact that virtually all new money is currently created by people or businesses or governments further indebting themselves to banks.<ref name="death"/><ref>[http://www.debunkingeconomics.com/Papers/Money/KeenModellingEndogenousMoneyICAPE.pdf Endogenous Money], Steve Keen</ref> This monetary system is called "endogenous" because the money supply is flexible, expanding in parallel with the demand for debt and stalling or contracting when demand for debt declines.<ref>[http://www.debunkingeconomics.com/Papers/Money/KeenModellingEndogenousMoneyICAPE.pdf Endogenous Money], Steve Keen</ref> Some consider this a perverse and dysfunctional way of introducing new money into the economy.<ref name="death"/>

The term, "debt-based monetary system," and related terms such as "debt money" are not used by conventional economists. Mainstream economists often refer to "debt money" by its antonym "credit" and distinguish between types of money only ''after'' the money is created. The very definition of "money" and the distinction between "debt" and "money" (and their respective economic effects) are still sources of vigorous ongoing debate.<ref>[http://www.youtube.com/watch?v=s8HnN8Htr1M David Graeber's Interview with Max Keiser]</ref><ref>[http://lewrockwell.com/wile/wile25.1.html Daily Bell Interview: Dr. Joseph Salerno]</ref><ref>[http://mises.org/daily/5052/Deflation-Confusion-Money-Is-Not-Credit Money Is Not Credit], Robert Blumen</ref><ref>[http://globaleconomicanalysis.blogspot.com/2009/02/fiat-world-mathematical-model.html Fiat World], MISH</ref><ref>[http://globaleconomicanalysis.blogspot.com/2010/09/myths-about-whats-economically.html What's Economically Important], MISH</ref> Mainstream economists rarely if ever discuss the origins of modern money and generally do not actively discuss or comment on the fact that virtually all money is now created through individuals, or businesses, or governments going into debt to government-sponsored commercial banks.<ref>[http://mises.org/daily/3108 The Social Imperative of Sound Money], Lew Rockwell</ref><ref>For an example of the mainstream use of the term "credit" instead of "debt-money" see [http://www.ft.com/cms/s/bdfa429e-17a2-11dd-b98a-0000779fd2ac,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2Fbdfa429e-17a2-11dd-b98a-0000779fd2ac.html&_i_referer=http%3A%2F%2Fwww.ft.com%2Fhome%2Fasia this] example from the Financial Times, 1 May 2008</ref> Discussion around the nature of "debt-based" money and the arguments over its effects on the economy are notably absent from most established mainstream academic economic publications<ref>Paul Krugman, writing at [http://www.slate.com/id/9593 Slate.com], stated that the Austrian theory of business cycles was "about as worthy of serious study as the phlogiston theory of fire".</ref> and most mainstream economists instead argue that the origin of different kinds of money (and the volume of their issuance) does not really matter, at least in the long run.<ref>[http://www.lewrockwell.com/wenzel/wenzel87.1.html Senior Fed Economist Calls Ron Paul a Pinhead]</ref> This mainstream idea is referred to as the theory of "money neutrality".<ref>[http://www.lewrockwell.com/wenzel/wenzel87.1.html Senior Fed Economist Calls Ron Paul a Pinhead]</ref><ref>[http://mises.org/daily/5172/Is-Inflation-Harmless-or-Even-Good Is Inflation Harmless or Even Good?], Robert Murphy</ref><ref>[http://libertarianpapers.org/articles/2011/lp-3-14.pdf Free Banking and the Structure of Production], Dan Mahoney</ref> Some commentators have speculated that the unusual "silence" around the topics of fractional reserve banking and central banking and the staunch refusal to consider alternative theories of money can be attributed to the simple fact that many economists are on the payroll of the major commerical or central banks of the world and are beholden to those banks for their livelihood.<ref>[http://www.safehaven.com/article/15068/economists-opposing-fed-audit-are-on-fed-payroll Economists on Fed Payroll], MISH</ref><ref>[http://www.huffingtonpost.com/2009/09/07/priceless-how-the-federal_n_278805.html Priceless], Ryan Grim, Huffington Post</ref><ref>[http://www.marketoracle.co.uk/Article26581.html Ten Reasons The Banksters Got Away With It], Danny Schechter</ref><ref>[http://www.youtube.com/watch?v=FxtCn2GyqKc&feature=related Corruption in Academic Economics], Charles Ferguson</ref><ref>[http://www.marketoracle.co.uk/Article27805.html Currency Dead End Paradox], Jim Willie CB</ref> Those economists who "dare" to speak about such topics are simply not employed by the banks, by government-sponsored universities or by international financial institutions and are not published in mainstream economic publications and, therefore, their views are not widely disseminated to the general public who are generally taught by government-sponsored teachers and receive their news from the mainstream media.<ref>[http://www.huffingtonpost.com/2009/09/07/priceless-how-the-federal_n_278805.html Priceless], Ryan Grim, Huffington Post</ref><ref>[http://www.marketoracle.co.uk/Article26581.html Ten Reasons The Banksters Got Away With It], Danny Schechter</ref><ref>[http://www.youtube.com/watch?v=FxtCn2GyqKc&feature=related Corruption in Academic Economics], Charles Ferguson</ref><ref>[http://www.wsws.org/en/articles/2013/01/29/keen-j29.html UWS victimises Professor Steve Keen]</ref><ref>[http://www.zerohedge.com/news/2013-05-02/guest-post-nicholas-taleb-against-establishment-economists Establishment Economists]</ref>

== Typical criticisms ==

Founder of the so-called "New Austrian School", Professor Antal E. Fekete, has stated the following in relation to the current monetary system:<ref>[http://www.professorfekete.com/articles/AEFTheSilverSaga.pdf The Silver Saga]</ref>

{{quote|The world economy, sagging as it is under the weight of its debt tower and fast depreciating irredeemable currencies, is clearly on its way to self-destruction. The forcible elimination of, first, silver and then a hundred years later of gold, from the monetary system removed the only ultimate extinguishers of debt we have. In consequence, total debt can only grow, never contract. The process is hidden since the unpaid and unpayable debt is accumulating as sovereign debt of governments. The world is deluding itself that sovereign debt can increase indefinitely as governments can extend its maturity indefinitely. In 2008 we had the wake-up call that it cannot. Unless we stop the proliferation of debt, the world is facing prolonged deflation, depression, continuing capital destruction, bankruptcies and unprecedented unemployment. It is leading to a breakdown of law and order. It could spell the end of our civilization.}}

In August 2004, four years ''before'' the Global Financial Crisis of September 2008 and the ongoing financial crises in Europe and elsewhere, Austrian commentator Robert K. Landis stated the following:<ref>[http://www.goldensextant.com/SavingtheSystem.html Saving the System]</ref>

{{quote|No, the die is cast: we shall have the catastrophe. Our fiat monetary system got a reprieve in the 1980's, not a deliverance. All that has happened since, with the fantastic mispricing of credit the Greenspan Fed has engineered, and the massive global malinvestment this has engendered, is that the dimensions of the unraveling have become more dire.

Mises called this one too: "Certainly, the banks would be able to postpone the collapse; but nevertheless, as has been shown, the moment must eventually come when no further extension of the circulation of fiduciary media is possible. Then the catastrophe occurs, and its consequences are the worse and the reaction against the bull tendency of the market the stronger, the longer the period during which the rate of interest on loans has been below the natural rate of interest and the greater the extent to which roundabout processes of production that are not justified by the state of the capital market have been adopted."

With respect to the form the denouement will take, much has been written within the gold community on the subject of whether we face hyperinflation or deflationary depression as the prelude to monetary collapse. Both sides of the debate appear to accept the premise that whatever may transpire will bear a linear relationship to what now exists. The disagreement centers on the direction the line will go. But today's markets are fully linked by derivatives and technology, and they are patrolled by wolf packs of large, leveraged speculators not noted for their patient outlook. So it seems likely that the terminal monetary crisis will unfold on virtually an instantaneous and discontinuous basis, once the fog of statistical deceit and false market cues begins to lift and a clear trend either way becomes evident. We are not likely to enjoy the luxury of observing either a deflation or an inflation unfold in the fullness of time, but rather, just as Mises foretold, a final and total catastrophe of our fiat monetary system.}}

Financial commentator Jim Willie has written the following regarding the current fiat money system:<ref>[http://www.marketoracle.co.uk/Article39362.html Raging Gold Bull]</ref>

{{quote|The West cannot solve its problems, hardly properly described as a financial crisis anymore, under the current framework bound to the fiat paper currencies. The global monetary war is heating up notably. The heavy liquidity has caused unfixable distortions in every conceivable bond market niche. The new and better debt devices have been exposed for their shams. The leading central bankers lost their credibility long ago. The weakness is as broad as it is deep, a reliance upon paper wealth and paper structures and paper contracts, during a time of zero bound interest rates and unfettered hyper monetary inflation to cover the debts. Almost no foreign USTreasury Bond buyers exist anymore. The US has become Weimar Amerika, a fascist enclave.}}

On 5 March 1997, in a speech in the House of Lords in London England, the Earl of Cathiness made the following observations:<ref>[http://prosperityuk.com/2001/06/our-debt-based-money-system-will-break-us/ Our debt-based monetary system will break us], Earl of Cathiness, House of Lords, Wednesday, 5 March, 1997, Hansard, Vol. 578, No. 68, columns 1869-1871</ref><ref>See also the additional House of Lords speeches contained [http://earthlinggb.wordpress.com/2011/04/06/british-house-of-lords-stunning-speeches/ here]</ref>

{{quote|...it is also a good time to stand back, to reassess whether our economy is soundly based. I would contest that it is not, not for the reason to which the noble Lord, Lord Eatwell, alluded, which is that it is the Government’s fault, but our whole monetary system is utterly dishonest, as it is debt-based. “Dishonest” is a strong word, but a system which by its very actions causes the value of money to decrease is dishonest and has within it its own seeds of destruction. We did not vote for it. It grew upon us gradually but markedly since 1971 when the commodity-based system was abandoned.

Let us look at what has happened since then. The money supply in 1971 was just under £31 billion. At the end of the third quarter of last year, it was about £665 billion. In 25 years it has grown by a staggering 2,145 per cent. Where has the money come from? Interestingly, the Government have only minted a further £20 billion in that time. It is the banks, the building societies and our commercial lenders who have created the balance of £614 billion. If this rate of growth is projected over the next 25 years, the money supply in 2022 will be over £14,000 billion.

All that new money bears interest paid either by us as individuals, by companies or by the Government. Today the Government pay over £30 billion annually in interest charges — coincidentally about the same as the total money supply only 25 years ago. Governments since then have abdicated their responsibility for producing new money and controlling the money supply so that now they are marginalised. In 1971 government notes and coins accounted for 14 per cent of the money supply. Now it is only about 3.5 per cent. “So what?”, noble Lords might ask.

The problem is that it is commercial lending that has boosted the money supply, thus increasing debt and, as sure as night follows day, inflation follows growth in money supply of this sort...

Conventional wisdom tells us that in order to create new jobs and boost the economy, interest rates have to be reduced. That has happened. People are encouraged to borrow to invest and spend. That has happened. As the continuing flow of new money finds its way into the economy, inflation will follow and up will go interest charges again to reduce the level of borrowing. In order to pay the increasing levels of interest, borrowers will once more have to reduce expenditure in other areas of economic activity. The cycle will continue, but the next time, as before, we will all start deeper in debt and with a burden harder to carry. Personal debt has already increased by nearly 3,000 per cent since 1971. How much more can we take? I hope, for the sake of our economy, without which we cannot finance what we want to see — a good health service and a good social security system among other things — we will question this conventional wisdom.

We all want our businesses to succeed, but under the existing system the irony is that the better our banks, building societies and lending institutions do, the more debt is created. The noble Lord, Lord Kingsdown, said that there is little that can be done about debt. No, I do not believe that. There is a different way: it is an equity-based system and one in which those businesses can play a responsible role. The next government must grasp the nettle, accept their responsibility for controlling the money supply and change from our debt-based monetary system. My Lords, will they? If they do not, our monetary system will break us and the sorry legacy we are already leaving our children will be a disaster.}}

On 4 November 1999, Lord Sudeley stated in the House of Lords:

{{quote|The only way in particular to stop inflation is to stop banks from creating credit. The supply of money should be removed from banks and should be assumed by governments, who should issue it on a debt-free basis. Such a view is supported by five disparate quarters: the noble Lord, Lord Beswick, in the debate which he introduced to this House in 1985, Disraeli, the Vatican under Pope Pius XI in his Encyclical Quadragesimo Anno in 1931, the Tsars of Russia in the last century, who prevented the setting up of a privately owned central bank, and, above all, Abraham Lincoln, who said that governments should create, issue, and circulate all currency and credits needed to satisfy the spending power of governments and the buying power of consumers.

By adopting those principles, the taxpayer would be saved immense sums of interest. Lincoln’s greenbacks were generally popular, and their existence let the genie out of the bottle with the public becoming accustomed to government-issued, debt-free money. The year after Lincoln’s assassination, Congress set to work at the bidding of the European central banking interests to retire the greenbacks from circulation and to ensure the reinstitution of a privately owned central bank under the usurers’ control.

During the history of the United States, the money power has gone back and forth between Congress and some privately owned central bank. The American people fought off four privately owned central banks before succumbing to a fifth privately owned central bank, at that time essential, owing to the period of weakness during the Civil War.

The founding fathers of the United States knew the evils of a privately owned central bank. They had seen how the Bank of England ran up the British national debt to such an extent that Parliament was forced to place unfair taxes on the American colonies, leading to their loss following, the American Revolution.

I now conclude. Once the fundamental decision is taken to prevent sterling from being debt-based, the Commonwealth could act as the right monetary union to use sterling debt-free as a genuine alternative to the dollar and the euro.}}

Norm Franz states in his ''Money and Wealth in the New Millennium'':<ref>[http://www.amazon.com/Money-Wealth-Millennium-Norm-Franz/dp/0971086303 ''Money and Wealth in the New Millennium''], Norm Franz</ref>

{{quote|Gold is the money of kings, silver is the money of gentlemen, barter is the money of peasants – but debt is the money of slaves.}}

12th century Chinese scholar Hu Zhiyu stated:<ref>Ralph T. Foster, ''Fiat Paper Money, The History and Evolution of Our Currency'', page 19</ref>

{{quote|Paper money, the child, is dependent on precious metals, the mother. [Inconvertible paper notes are therefore] orphans who lost their mother in childbirth.}}

Robert H. Hemphill, credit manager of the Federal Reserve in Atlanta, stated in 1939:<ref>Preface to ''100% Money'', Irving Fisher. Note: This quote has not been traced to the primary source. See for example [http://www.webofdebt.com/excerpts/introduction.php Web of Debt] and [http://www.lewrockwell.com/north/north908.html Gary North's critique of the book and its sources]</ref>

{{quote|If all the bank loans were paid, no one would have a bank deposit and there would not be a dollar of coin or currency in circulation. This is a staggering thought. Someone has to borrow every dollar we have in circulation, cash or credit. If the banks create ample synthetic money we are prosperous; if not, we starve. When one gets a complete grasp of the picture the tragic absurdity of our hopeless position is almost incredible, but there it is. It (the banking problem) is the most important subject intelligent persons can investigate and reflect upon. It is so important that our present civilization may collapse unless it becomes widely understood and the defects remedied very soon.}}

British monetary reformer Michael Rowbotham states the following in his book, ''The Grip of Death'' (the title being derived from the literal origin of the word "mortgage"):<ref name="death">{{cite book |last= Rowbotham |first= Michael |title= The Grip of Death: A Study of Modern Money, Debt Slavery and Destructive Economics | year= 1998 |publisher= Jon Carpenter Publishing |isbn= 9781897766408 }}</ref>

{{quote|It is actually not in the least surprising that nations are chronically in debt, governments have inadequate resources, public services are under-funded and people are beset by mortgages and overdrafts. The reason for all this monetary scarcity and insolvency is that the financial system used by all national economies worldwide is actually founded upon debt. To be direct and precise, modern money is created in parallel with debt. The reason for the failure of economists to question patently invalid monetary data becomes clear - there is a total acceptance by them of the most extraordinary method for supplying money to the modern economy.

The creation and supply of money is now left almost entirely to banks and other lending institutions. Most people imagine that if they borrow from a bank, they are borrowing other people's money. In fact, when banks and building societies make any loan, they create new money. Money loaned by a bank is not a loan of pre-existent money; money loaned by a bank is additional money created. The stream of money generated by people, businesses and governments constantly borrowing from banks and other lending institutions is relied upon to supply the economy as a whole. Thus the supply of money depends upon people going into debt, and the level of debt within an economy is no more than a measure of the amount of money that has been created...

All around us, the gross failure of modern economics screams out to be addressed. The towering indifference of those shining offices scraping the sky above the menacing ghettos of Brooklyn; the speculative channelling of billions of pounds of volatile international finance, which can leave a country prosperous one week and plunged into decline the next; the ludicrous production of cheap goods of poor durability, so that jobs are 'protected', and we can recycle the materials and make the goods all over again; the ridiculous export drives by which every country simultaneously attacks the economies of every other nation, under the pretence that such global free trade improves the general wellbeing; the staggering waste of a throwaway, quick-growth, all-new spiral of constant economic change; the outrageous financial debt which Third World countries have actually paid many times over, but which, due to interest, is now larger than ever before - a debt which forces those impoverished nations to compete to supply goods already in surplus; the cynical manipulation of human emotions into buying fashion-obsessed trivia; the burgeoning transport demands of escalating economic growth and centralisation, with identical goods crisscrossing the globe, regardless of environmental cost; the fact that despite the incredible productive capacity of the modern economy, people are obliged to work harder, with ever greater efficiency, forever forced to adapt and retrain or face a life of indignity and misery as one of the unemployed.

Both those in work and out must watch, as the world they know and understand changes almost in front of their eyes like some nightmarish Kafka-esque novel. This is the era of accelerating economic change. The benefits are highly dubious, and no-one even pretends that the economy is responding to what people actually want. The only justification offered for the changes is that this is 'the age of progress', and 'you can't stop progress', even if you are human and the progress you are discussing is supposed to be about people and the lives they might lead in the future. The world of economics has got mankind by the throat and everyone knows it, and no-one has a clue where we are going or why we are going there.

But is this surprising? If a monetary system is invalid or flawed, then the entire economy is based on the mathematics of error, and must be riddled with the effects. If the financial system upon which our economies are built is defective, and yet monetary considerations dominate our economic decisions, should we be surprised if the results are less than satisfactory?

The major role played by bank credit, which forms over 95% of the money stock in most developed nations, suggests that it cannot but be implicated in these trends. This is further suggested by the way that banking has literally become the focal point of modern economic management, through manipulating interest rates. The stargazers of Whitehall and the Federal Reserve hold their councils, trying to tread the non-existent tightrope between growth and recession by debating quarter percentage-points of interest rates. Alan Greenspan, the Chairman of the Federal Reserve, engagingly describes his task in controlling the American economy through adjusting interest rates as a matter of 'taking the champagne away once the party has started'. Businessmen around the world hold their breath, measuring his every word, wondering what he will decide. There could be no greater indictment of contemporary financial economics than this; that a fluctuating financial digit on a single computer system in a single street in a single country should have the ability to dominate the economies of an entire planet...

The past thirty years are almost unique by comparison with the previous three centuries in the lack of attention that has been directed at debt and the financial system. Throughout the eighteenth century, there were repeated calls for reform. During the nineteenth century, excessive banking was held by many to be directly responsible for the waves of appalling poverty that swept Europe and America during a period of increasing industrialisation and agricultural development. In this century, during the depression of the 1930s, the financial system effectively seized up and brought virtual collapse to the economies of the world in an age which was, perhaps for the first time, obviously wealthy, and in which technology offered people real freedom as well as material prosperity. One observer judged that over 2,000 schemes for monetary reform were put forward at that time - all with a common theme in their outright rejection of the debt-based financial system as it then operated. The same system continues to this day, modified in small details, but unchanged in principle; and the recent financial crisis in Asia shows the potential for collapse still exists.

However the issue of economic volatility through booms, slumps, crises, and collapses has never been the sole point of criticism. It is the long-term trends that a debt-based financial system fosters which are most destructive. The most obvious of these is declining personal solvency. Mortgages support over 60% (£420 billion) of the money stock in the UK and over 70% ($4.2 trillion) in the US. Housing-debt statistics for the UK and the US show that there has been a dramatic decline in true home ownership as mortgages become higher and ever more widespread. There can be little question that relying upon housing debt to supply money to an economy lacks economic and political justification. However, taken in conjunction with the marked rise in commercial debt, mortgages have a knock-on effect. In an economy where the price of goods is elevated by commercial debt and consumer incomes are deeply eroded by mortgage debt, there is a persistent and subtle advantage given to low-quality, mass-produced goods, and growth is fostered in this direction. The persistent decline in product durability and the growth-culture of a rapacious consumer society can be directly traced to the debt-based financial system.

The financial system has also generated a serious distortion of agriculture. Excessive farming debt has driven out the most efficient producers - small/medium sized farms. Meanwhile, the relentless pursuit of farming and processing methods oriented towards a low-price market now involves the production of foodstuffs of poor nutritional value, inferior to that which the land can provide and inferior to that which consumers actually desire.

The nature of growth within a debt economy affects not only the quality of output, but distribution and marketing. Intense competition for sales within a debt-based economy results in the use of transport as a competitive strategy by businesses. This has led to a progressive breakdown of local and regional supply networks, and marketing over ever-greater distances, leading to escalating commercial traffic demands.

At the international level, trade is deeply affected by the debt-based financial system. The aggressive pursuit of maximum export revenues, rather than seeking a simple balance of trade, is entirely due to the fact that even the wealthiest nations operate from a position of gross insolvency. International trade has degenerated into a competition between nations to alleviate their indebtedness, rather than a process involving a mutually beneficial exchange of goods and services.

Endemic Third World debt is also directly attributable to the reliance upon debt and banking to supply money. The theoretical model of borrowing from the World Bank/IMF, investing in development and repaying loans from export revenues, is one of the great failures of contemporary economics. The persistent inability on the part of debtor nations to repay these loans suggests strongly that the nature of the indebtedness suffered by the Third World has absolutely no actual legitimacy or validity...

The more one explores the broad impact of debt, the more apparent it becomes that bank-credit constitutes a dysfunctional form of money. An economy based almost entirely upon bank-credit and debt experiences an intense drive for growth, regardless of need or demand. Bank credit engenders financial dependence, injects instability and fosters growth-distortions, both within an economy and throughout the international arena.

Reform of the debt-based financial system is clearly not a minor issue. It is not a matter of fiddling around with taxes, incomes and allowances to make things apparently more equal, more efficient, or perhaps more straightforward. Changing the debt-based financial system involves gradually altering the very foundations upon which national and international economics is based. Monetary reform is concerned with attempting to determine a new principle for the supply of money to an economy - the purpose being to create a supportive financial environment in which more constructive economic trends are allowed to emerge, and in which more benign systems of overall economic management become possible. In view of the rapacious onslaught on the environment, the waste of natural resources and the social and political friction caused by de-regulated commerce and capital flows, this is at once a promising, but a sobering prospect.}}

Dr Chris Leithner states in his book ''The Evil Princes of Martin Place'':<ref>[http://economics.org.au/2011/04/the-banking-bubble-blow-by-blow/ The Evil Princes of Martin Place]</ref>

{{quote|The inflation that necessarily results from fractional reserve banking is a “tax” by which the early recipients of counterfeit money expropriate late recipients’ wealth. The tax is particularly insidious because it’s so well hidden. Few people — apparently including banksters and mainstream economists! — understand it (or, if they understand it, certainly don’t draw attention to it); and still less do they discuss its ethical and distributional implications. Obviously, it’s in insiders’ interest to distract outsiders’ attention from the source of the counterfeiting. It’s also in their interest to reverse the order of causality with respect to the cause and consequences of inflation, and thereby further to bamboozle the public. Accordingly, governments and mainstream economists don’t attribute the consequence (rising prices) to its single cause (inflation); instead, they brazenly and diametrically incorrectly insist that rising prices cause inflation! (p. 143)...

Gosplan, the Soviet Union’s central planning agency, set targets for the production of steel, cement and myriad other goods and services; Western central banks set targets for the Overnight Cash Rate and the Consumer Price Index. The chaotic consequences of central plans, Soviet and Western, necessarily reverberate throughout the economy … It’s quite comical: people who claim they “believe in the free market” blindly and unthinkingly affirm central banking and its relentless interventions into the market. Elementary logic completely escapes them: if you reject central planning in general, then you must also reject specific aspects like the central planning of money. If you abhor attempted price-fixing, then you must abhor the attempt to fix the Overnight Cash Rate. (pp. 254-55)...

[I]t is highly improbable that the combination of a pure gold standard and a 100% reserve for deposits has ever resulted in a prolonged rise of prices. The historical record is telling: in no year from 1492 to the present has the total supply of gold increased by more than 5%. (p. 552)}}

Ron Paul stated in his book ''End the Fed'':<ref name="Paul_End">Ron Paul. [http://mises.org/daily/3687 ''End the Fed''], ''Mises Institute'', September 03, 2009. Chapter 2 of the book ''End the Fed''. Referenced 2011-03-16.</ref>

{{quote|American presidents actually worked to implement and defend the gold standard, which put a brake on the ability of the largest banks to expand credit without limit. The gold standard worked like a regulator in this way. Ultimately, banks had to function like every other business. They could expand and make risky loans up to a point, but when faced with bankruptcy, they had nowhere they could turn. They would have to contract loans and deal with extreme financial pressures. Risk bearing is a wonderful mechanism for regulating human decision making. This created a culture of lending discipline.

In the jargon of the day, the system lacked "elasticity." That's another way of saying that banks couldn't expand money and credit as much as they wanted. They couldn't inflate without limit and count on a centralized institution to bail them out...

The banking industry has always had trouble with the idea of a free market that provides opportunities for both profits and losses. The first part, the industry likes. The second part is another issue. That is the reason for the constant drive in American history towards the centralization of money and banking, a trend that not only benefits the largest banks with the most to lose from a sound money system, but also the government, which is able to use an elastic system as an alternative form of revenue support. The coalition of government and big bankers provides the essential backbone of support for the centralization of money and credit...

Consider the Soviet case: to my knowledge, no business ever went under with the Soviet system but society in general grew ever poorer. Think of that Soviet system applied to the banking industry and you have the Fed.}}

He also wrote the following in March 2013:<ref>[http://lewrockwell.com/paul/paul854.html The Great Cyprus Bank Robbery]</ref>

<blockquote>Remember that under a fractional reserve banking system only a small percentage of deposits is kept on hand for dispersal to depositors. The rest of the money is loaned out. Not only are many of the loans made by these banks going bad, but the reserve requirement in Euro-system countries is only one percent! If just one euro out of every hundred is withdrawn from banks, the bank reserves would be completely exhausted and the whole system would collapse. Is it any wonder, then, that the EU fears a major bank run and has shipped billions of euros to Cyprus?

The elites in the EU and IMF failed to learn their lesson from the popular backlash to these tax proposals, and have openly talked about using Cyprus as a template for future bank bailouts. This raises the prospect of raids on bank accounts, pension funds, and any investments the government can get its hands on. In other words, no one's money is safe in any financial institution in Europe. Bank runs are now a certainty in future crises, as the people realize that they do not really own the money in their accounts. How long before bureaucrat and banker try that here?

Unfortunately, all of this is the predictable result of a fiat paper money system combined with fractional reserve banking. When governments and banks collude to monopolize the monetary system so that they can create money out of thin air, the result is a business cycle that wreaks havoc on the economy. Pyramiding more and more loans on top of a tiny base of money will create an economic house of cards just waiting to collapse. The situation in Cyprus should be both a lesson and a warning to the United States. We need to end the Federal Reserve, stay away from propping up the euro, and return to a sound monetary system.</blockquote>

In the foreward to ''Fiat Money Inflation in France'', Mr John McKay wrote the following:<ref>[http://mises.org/books/inflationinfrance.pdf ''Fiat Money Inflation in France''], Andrew Dickson White, 1912</ref>

{{quote|The story of "Fiat Money Inflation in France" is one of great interest to legislators, to economic students, and to all business and thinking men. It records the most gigantic attempt ever made in the history of the world by a government to create an inconvertible paper currency, and to maintain its circulation at various levels of value. It also records what is perhaps the greatest of all governmental efforts—with the possible exception of Diocletian's—to enact and enforce a legal limit of commodity prices. Every fetter that could hinder the will or thwart the wisdom of democracy had been shattered, and in consequence every device and expedient that untrammelled power and unrepressed optimism could conceive were brought to bear.

But the attempts failed. They left behind them a legacy of moral and material desolation and woe, from which one of the most intellectual and spirited races of Europe has suffered for a century and a quarter, and will continue to suffer until the end of time. There are limitations to the powers of governments and of peoples that inhere in the constitution of things, and that neither despotisms nor democracies can overcome.

Legislatures are as powerless to abrogate moral and economic laws as they are to abrogate physical laws. They cannot convert wrong into right nor divorce effect from cause, either by parliamentary majorities, or by unity of supporting public opinion. The penalties of such legislative folly will always be exacted by inexorable time. While these propositions may be regarded as mere commonplaces, and while they are acknowledged in a general way, they are in effect denied by many of the legislative experiments and the tendencies of public opinion of the present day. The story, therefore, of the colossal folly of France in the closing part of the eighteenth century and its terrible fruits, is full of instruction for all men who think upon the problems of our own time.}}

C.J. Maloney wrote of the desperation of Henry VIII of England to counterfeit gold by engaging charlatan-alchemists:<ref>[http://www.lewrockwell.com/maloney/maloney28.1.html The Desperation of King Henry VIII], C.J. Maloney</ref>

{{quote|Despite his formidable education and great historic reputation, the disastrous interventions into the economy, the lifelong dishonesty with the currency in his care and, most of all, his laughable attempts to bring a sorcerer into his court to conjure gold, mark the great King Henry VIII as a fool. Yet there is no reason, be warned, for anyone to feel superior to the King; one only needs to pick up a newspaper to see that though alchemy may be a dead science, it has merely taken up new forms.

This has always been and always will be, for its immortality is powered by economic man’s most dangerous, fondest wish, the one that will drive us to endless imbecilities and repeated destruction – the ardent desire to believe that you can get something for nothing. His adherence to that belief made King Henry VIII a man of his times – and ours.}}

In his treatise, ''The Ethics of Money Production'', which was published by the Mises Institute in October 2008, Jörg Guido Hülsmann presents (at pages 238-239) the following description of the perverse rise of fiat money and fractional reserve banking:

{{quote|There is no tenable economic, legal, moral, or spiritual rationale that could be adduced in justification of paper money and fractional-reserve banking. The prevailing ways of money production, relying as they do on a panoply of legal privileges, are alien elements in the capitalist [i.e., true free market] economy. They provide illicit incomes, encourage irresponsibility and dependence, stimulate the artificial centralization of political and economic decision-making, and constantly create fundamental disequilibria that threaten the life and welfare of millions of people. In short, paper money and fractional-reserve banking go a long way toward accounting for the excesses for which the capitalist economy is widely chided.

We have argued that these monetary institutions have not come into existence out of any economic necessity. They have been created because they allow an alliance of politicians and bankers to enrich themselves at the expense of all other strata of society. This alliance emerged rather spontaneously in the seventeenth century; it developed in multifarious ways up to the present day, and in the course of its development it created the current monetary institutions.

…The driving force that propelled the development of central banks and paper money was the reckless determination of governments, both aristocratic and democratic, to increase their revenue, if necessary in violation of good faith and of all established rules of commerce.}}

The father of the Deutsche Mark, Wilhelm Röpke (1899-1966) stated:<ref>[http://www.professorfekete.com/articles/AEFAmericanBasesGermanyGoldBasis.pdf The Gold Basis], Antal E Fekete</ref>

{{quote|It is not the gold standard that failed, but those in whose care it was entrusted.}}

Many [[monetary reform]]ers claim that a fiat money/fractional-reserve based banking system is inherently destructive and inevitably generates [[inflation|debasement of the currency]], extreme inequality, the destruction of the middle class<ref name="Paul_End" /> and [[Austrian Business Cycle Theory|wrenching business crises]].<ref>[http://www.marketoracle.co.uk/Article25212.html The Faults of FRB], Thorsten Polleit</ref><ref name="Paul_End" /><ref>[http://mises.org/store/Money-Bank-Credit-and-Economic-Cycles-P290C0.aspx Money, Bank Credit and Economic Cycles], Jesus Huerta de Soto, Mises Institute ISBN: 978-1-933550-39-8</ref><ref>[http://www.mises.org/Books/mysteryofbanking.pdf Murray Rothbard, ''The Mystery of Banking'']</ref><ref name="books.google.com">{{cite book |last= Brown |first= Ellen H. |title= Web of Debt |url= http://books.google.com/books?id=ILMGrEC524UC |accessdate= 2007-12-15 |year= 2007 |publisher= Engdahl Publishing|isbn= 0979560802 }}</ref><ref name="death"/><ref name="monetary.org">[http://www.monetary.org/lostscienceofmoney.html Stephen A. Zarlenga, ''The Lost Science of Money'' AMI (2002)]</ref><ref>[http://mises.org/story/3108 Sound Money], Lew Rockwell</ref><ref>[http://mises.org/story/1971 Our Money Madness], Lew Rockwell</ref><ref>[http://mises.org/rothbard/genuine.asp The Case for a Gold Dollar], Murray Rothbard</ref><ref name="twilight"/> Vladimir Z. Nuri has analyzed fractional reserve banking and considers it a form of economic parasitism.<ref>[http://econpapers.repec.org/paper/wpawuwpma/0203005.htm Fractional Reserve Banking as Economic Parasitism]</ref> Ellen Hodgson Brown has compared fractional reserve banking and the charging of compound interest on created money with cancer.<ref>[http://www.marketoracle.co.uk/Article39053.html Why Bankers Rule the World], Ellen Hodgson Brown</ref>

These views are not accepted by mainstream government-supported economists. For example David Andolfatto, Vice President in the Research Division of the Federal Reserve Bank of St. Louis, has openly called Dr. Ron Paul a "pinhead" for holding such views.<ref>[http://www.lewrockwell.com/wenzel/wenzel87.1.html Senior Fed Economist Calls Ron Paul a Pinhead], LRC</ref> He later tried unsuccessfully to delete or retract his statements and expressed his regret over making the comments.<ref>[http://www.lewrockwell.com/wenzel/wenzel92.1.html Fed Economist in Retreat], Robert Wenzel</ref>

Critics of fractional reserve banking frequently argue that since money creation requires ''loans'' from the banking system, people are required to go further into debt in order for any new money to be created. They theorize that this eventually causes [[Austrian Business Cycle Theory|credit cycle]]s (or [[Austrian Business Cycle Theory|business cycles]]) and debases the [[means of exchange]].<ref>[http://www.marketoracle.co.uk/Article25212.html The Faults of FRB], Thorsten Polleit</ref> They also argue that if debts were ever paid back, there would be no money and the economy would collapse in a debt-deflation trap.<ref>[http://www.youtube.com/watch?v=jqvKjsIxT_8 Money As Debt]</ref> They therefore argue the system is ''inherently unstable'', requiring constantly increasing injections of debt just to avoid deflationary collapse.<ref>[http://www.youtube.com/watch?v=jqvKjsIxT_8 Money As Debt]</ref> They claim this is ultimately unsustainable.<ref>[http://www.youtube.com/watch?v=jqvKjsIxT_8 Money As Debt]</ref><ref>[http://www.youtube.com/watch?v=HZAzBDDnhwg Rich Dad Advisors Discuss Food Storage]</ref>

Many critics find it problematic that banks "create money out of nothing" and consider this fundamentally immoral, akin to [[counterfeiting]]<ref>[http://www.youtube.com/watch?v=QIBFvikcl7g Stacy Herbert and Max Keiser: Flaming Banks] Max Keiser Quote: "Banks counterfeit money. Bernanke, Geithner... anyone in the banking business is just a... just an out of control, rogue, counterfeiting, naked short selling ''weasel''."</ref> and/or [[embezzlement]].<ref>[http://www.dailypaul.com/node/119914 Ron Paul video - fractional reserve banking is fraudulent]</ref><ref name="Paul_End" /><ref>[http://www.marketoracle.co.uk/Article25212.html The Faults of FRB], Thorsten Polleit</ref>

Some also link the alleged negative effects of fractional reserve banking with central banking<ref>[http://www.zerohedge.com/article/guest-post-qe-end-america-we-know-it QE Is The End Of America], ZeroHedge</ref> and a government-enforced "paper" or [[fiat currency]],<ref>[http://www.marketoracle.co.uk/Article27768.html The Federal Reserve Note Is Dead], Jeff Berwick</ref> which they claim allows the practice of fractional reserve banking to continue without a "natural" limitation on the growth of the [[money supply]], thereby causing inherently unsustainable "[[bubble (economics)|bubbles]]" in asset and capital markets, which are vulnerable to Ponzi-like speculation by highly leveraged [[hedge funds]] and other bank agents.<ref name="Paul_End" /><ref>[http://www.debtdeflation.com/blogs/2009/12/23/mish-on-the-fictional-reserve-system/ MISH on the Fictional Reserve System], Steve Keen</ref><ref>[http://mises.org/store/Money-Bank-Credit-and-Economic-Cycles-P290C0.aspx Money, Bank Credit and Economic Cycles], Jesus Huerta de Soto, Mises Institute ISBN: 978-1-933550-39-8</ref><ref name="books.google.com">{{cite book |last= Brown |first= Ellen H. |title= Web of Debt |url= http://books.google.com/books?id=ILMGrEC524UC |accessdate= 2007-12-15 |year= 2007 |publisher= Third Millennium Press |location= Baton Rouge, Louisiana |isbn= 0979560802 }}</ref><ref name="death"/><ref name="monetary.org">[http://www.monetary.org/lostscienceofmoney.html Stephen A. Zarlenga, ''The Lost Science of Money'' AMI (2002)]</ref><ref>[http://mises.org/story/3108 Sound Money], Lew Rockwell</ref><ref>[http://mises.org/story/1971 Our Money Madness], Lew Rockwell</ref><ref>[http://mises.org/rothbard/genuine.asp The Case for a Gold Dollar], Murray Rothbard</ref><ref name="twilight"/><ref>[http://www.marketoracle.co.uk/Article25212.html The Faults of FRB], Thorsten Polleit</ref>

Reformist economists such as [[Murray Rothbard]] support a "full reserve" banking system and criticize [[fractional reserve banking]] as inherently fraudulent.<ref>[http://mises.org/daily/5185/The-Need-for-100-Reserves The Need for 100% Reserves], Frank D. Graham</ref> [[Murray Rothbard]] held this view very strongly throughout his life.<ref name="Paul_End" /><ref>[http://www.marketoracle.co.uk/Article25212.html The Faults of FRB], Thorsten Polleit</ref> Other reformist economists are more tolerant of fractional-reserve banking and support [[free banking]] instead of full reserve banking.<ref>[http://books.google.com/books?id=DFv6OzeBWpQC&pg=PP3&dq=steven+horwitz++banking&sig=VZasp_8pGVvpQsFKMI3W9yp4AlM#PPA231,M1 Microfoundations and Macroeconomics: An Austrian Perspective], Steven Horwitz, pp. 223-232.</ref>

==Basic debate==

The economic, environmental and social effects arising from money creation through fractional-reserve banking have been subject to much heated political debate for well over two centuries.<ref name="The Forgotten War"/><ref name="books.google.com"/><ref name="death"/><ref name="twilight"/><ref>[http://www.silverbearcafe.com/private/fracbank.html Antal E. Fekete, Fractional Reserve Banking Revisited]</ref><ref>[http://news.goldseek.com/GoldSeek/1297199137.php China Inflation and Gold], Darryl Robert Schoon</ref><ref>[http://www.zerohedge.com/article/guest-post-good-bad-and-ugly-part-3 The Good, the Bad and the Ugly], James Quinn</ref><ref>[http://www.marketoracle.co.uk/Article29255.html The Collapse of Paper Money], Darryl Robert Schoon</ref><ref>[http://www.goldismoney2.com/archive/index.php/t-524.html?s=d418ff253326772a09e1a8d992da7753 Venetian Bankers and the Dark Ages]</ref>

Many Austrian economists and monetary reformers focus on the combined use of [[fiat currency]], [[fractional-reserve banking]] and [[central banking]] as a negative feature of modern monetary systems.<ref>[http://www.youtube.com/watch?v=G1l7DY8kdz0 The Fed Unspun]</ref><ref>[http://mises.org/media/4014 The Economics of Legal Tender Laws], [[Jorg Guido Hulsmann]]</ref><ref>[http://mises.org/store/Meltdown-P557.aspx ''Meltdown''], Tom Woods, Regnery Press ISBN: 9781596985872</ref> These commentators use the term "debt-based monetary system" to refer to an economic system where [[money]] is created primarily through fractional-reserve banking techniques, using the banking system.<ref>[http://mises.org/daily/4569 What Does Debt-Based Money Imply for Interest Payments?], Robert Murphy</ref><ref>[http://mises.org/daily/4631 Is Our Money Based On Debt?], Robert Murphy</ref><ref name="speech"/> This form of money is called "debt-based" because as a ''condition of its creation'' someone must go into debt in order for the money to be created and it must be paid back plus interest at some time in the future.

To some commentators, this implies that as the [[money supply]] and the economy grows, the general populace becomes increasingly indebted at the same time due to the fact that debt grows in parallel with money supply growth, and increasing interest payments (from either taxpayers or indebted consumers) are needed to pay bondholders as the money supply grows.<ref>[http://www.marketoracle.co.uk/Article28533.html The Global Debt Crisis], Ellen Hodgson Brown</ref><ref name="death"/><ref name="twilight">[http://www.marketoracle.co.uk/Article4489.html Antal E. Fekete, The Twilight of Irredeemable Debt]</ref><ref name="The Forgotten War">[http://news.goldseek.com/GoldSeek/1192819378.php America's Forgotten War Against the Central Banks], Mike Hewitt</ref>

One argument posits that since debt and the interest on the debt can only be paid in the same form of money, the total debt (principal plus interest) can never be paid in a debt-based monetary system unless more money is created through the same process.<ref>[http://www.marketoracle.co.uk/Article28533.html The Global Debt Crisis], Ellen Hodgson Brown</ref><ref>[http://www.marketoracle.co.uk/Article38581.html The Trillion Dollar Coin: What You Really Need To Know], Rudy Avizuis</ref> For example: if 100 credits are created and loaned into the economy at 10% per year, at the end of the year 110 credits will be needed to pay the loan and extinguish the debt. However, since the additional 10 credits does not yet exist, it too must be borrowed. To some, this implies that the money supply must grow exponentially at the same rate as economic growth and compounding debt in order for the monetary system to remain solvent, as economic activity would be stifled with a static volume of money when interest became due, because in a static-money world no new money could be found to be taken out of circulation to allow debtors to pay outstanding interest to creditors.<ref name="death"/><ref name="twilight"/><ref>[http://globaleconomicanalysis.blogspot.com/2011/01/steve-keen-responds-to-world-economic.html Exponential Credit], MISH,</ref><ref>[http://blog.mises.org/17737/chancellor-not-enough-gold/ Not Enough Gold], Robert Blumen</ref><ref>[http://mises.org/daily/6391/Why-the-Greenbackers-Are-Wrong Why Greenbackers Are Wrong], Thomas Woods</ref>

Others argue that there is in fact no mathematical necessity for the stock of money in a debt-based system to grow, as the "turnover" or "flow" or "velocity" of money can increase to allow for compounding interest payments.<ref>[http://mises.org/daily/4569 What Does Debt-Based Money Imply for Interest Payments?], Robert Murphy</ref><ref>[http://www.debtdeflation.com/blogs/2010/10/08/ami-talks-in-flv-format/ AMI Conference 2010], Steve Keen</ref><ref>[http://www.debtdeflation.com/blogs/2010/11/05/solving-the-paradox-of-monetary-profits-2/ Solving the Paradox of Monetary Profits], Steve Keen</ref><ref>[http://www.zerohedge.com/news/2013-02-11/occams-gold-vs-rube-goldbergs-fiat Occam's Gold]</ref><ref>[http://mises.org/daily/6391/Why-the-Greenbackers-Are-Wrong Why Greenbackers Are Wrong], Thomas Woods</ref> However this does imply that population growth would need to be positive to encourage increased spending rates or some individual consumers would have to increase their rate of spending (and decrease their savings) to expand GDP sufficiently to allow the fixed stock of money to turnover sufficiently to pay for the interest compounding on top of the debt.<ref>[http://globaleconomicanalysis.blogspot.com/2011/01/steve-keen-credit-impulse.html The Credit Impulse], Steve Keen with commentary from MISH</ref><ref>[http://mises.org/daily/4569 What Does Debt-Based Money Imply for Interest Payments?], Robert Murphy</ref><ref>[http://www.debtdeflation.com/blogs/2010/10/08/ami-talks-in-flv-format/ AMI Conference 2010], Steve Keen</ref><ref>[http://www.debtdeflation.com/blogs/2010/11/05/solving-the-paradox-of-monetary-profits-2/ Solving the Paradox of Monetary Profits], Steve Keen</ref> This may mean that Ponzi-like dynamics bubble up in "pockets" of the economy with interest payments being allowed in a fixed money economy, but these debt-fuelled bubbles of higher spending or speculation would pop and die out relatively quickly as there would be no central bank to keep the bubbles alive with further money creation.<ref>[http://mises.org/daily/4569 What Does Debt-Based Money Imply for Interest Payments?], Robert Murphy</ref><ref>[http://globaleconomicanalysis.blogspot.com/2011/01/steve-keen-credit-impulse.html The Credit Impulse], Steve Keen with commentary from MISH</ref><ref>[http://www.zerohedge.com/news/2013-02-11/occams-gold-vs-rube-goldbergs-fiat Occam's Gold]</ref>

Gold, silver and other [[precious metals]] have in the past been used as money.<ref>[http://www.zerohedge.com/news/2013-02-11/occams-gold-vs-rube-goldbergs-fiat Occam's Gold]</ref> Because of the difficulty in increasing the supply of precious metals quickly, some [[monetary reform]]ers believe a return to the [[gold standard]], or a similar system of "hard" or "real" asset-backed currency, is the only way to stabilize the growth of the money supply. These monetary reformers often refer to the gold standard and [[silver standard]] as "sound money" or "honest money".<ref>[http://mises.org/daily/4860 Money: Sound and Unsound], Mark Thornton commentary on Joseph Salerno's book</ref><ref>[http://mises.org/daily/6391/Why-the-Greenbackers-Are-Wrong Why Greenbackers Are Wrong], Thomas Woods</ref>

==Main criticisms==

In a 2003 statement to the U.S. House of Representatives, Ron Paul stated "if unchecked, the economic and political chaos that comes from currency destruction inevitably leads to tyranny".<ref name="house.gov">[http://www.house.gov/paul/congrec/congrec2003/cr090503.htm Paper Ron Paul, Paper Money and Tyranny, Speech in U.S. House of Representative, September 5, 2003]</ref>

Some economic thinkers (primarily members of the [[Austrian School]]) and political commentators believe that a debt-based monetary system amounts to a subtle form of monetary "[[fraud]]" in that it creates money "costlessly" through the use of [[fractional-reserve banking]] techniques.<ref>[http://www.mises.org/rothbard/moneyback.asp Taking Money Back, by Murray Rothbard]</ref>

Michael Rowbotham is an active proponent of [[monetary reform]], and argues that this system of [[money supply]] is perverse and inherently monopolistic and "anti-democratic", as it creates an inflationary exponential growth imperative in the economy which leads to over-centralization and environmentally damaging and unstable over-consumption. Critics such as Rowbotham argue that the indebted are forced to induce new consumers to spend their way into debt so existing loans can be repaid with new debt-created money. Failure to achieve this goal results in [[foreclosure]] for those businesses and [[insolvency]] in the banking system that leads to economic collapse due to the sudden contraction of the money supply.<ref name="death"/><ref name="Ponzi Nation">[http://www.iimagazine.com/article.aspx?articleID=1234345 Ponzi Nation]</ref> This failure is inevitable due to the fact that, eventually, debt-saturated businesses and governments will no longer be able to force individuals into further debt due to the fact that they are already debt-saturated themselves. Once this point is reached, economic collapse is inevitable without wholesale debt repudiation.

Mark Anielski as well as some political thinkers such as Rowbotham and some economists (such as Hyman Minsky, Steve Keen and Mike Shedlock) argue that this system of money supply has characteristics similar to a [[pyramid scheme]], where the newly indebted are compelled to induce others into debt to pay off their own debts.<ref>[http://globaleconomicanalysis.blogspot.com/2011/01/steve-keen-credit-impulse.html The Credit Impulse], Steve Keen with commentary from MISH</ref><ref>[http://www.lin.ca/resource/html/arpa02/PC1-FertileObfuscation.pdf ''Fertile Obfuscation: Making Money Whilst Eroding Living Capital''], 34th Annual Conference of the Canadian Economics Association, Mark Anielski</ref> It is therefore argued by a number of monetary reformers that fractional-reserve banking and the associated exponential growth of money in the economy "forces" the economy towards indebted consumerism.<ref name="books.google.com"/>

Rowbotham argues that a major negative side-effect of the debt-based monetary system is its effect on agriculture, claiming that residential development produces by far the greatest continuous injection of debt money into modern debt-based economies because banks secure loans primarily with developed property and are therefore willing to issue more debt-money against property development than any other asset class. Therefore, significant super-normal profits can be generated by re-zoning agricultural land and replacing it with low-density [[House|housing]].<ref name="death"/>
If this is correct, this trend will lead to the destruction of fertile arable land, as farmers cannot compete to retain fertile arable land from property developers at the periphery of major population centers, and as this land is then progressively re-zoned for speculative new residential development. Rowbotham predicts that the global supply of fertile arable land will systematically and catastrophically decline as perverse monetary incentives inherent in the current debt-based system favor short-term speculative land development over long-term food security, leading to a broad decline in the quality and nutritional value of agricultural produce and, eventually, a dramatic increase in the prices of many "soft" commodities - which could then lead to actual food shortages for poorer segments of the world population.<ref>[http://www.marketoracle.co.uk/Article27874.html Horrific Global Food Crisis is Looming], Michael Snyder</ref><ref>[http://www.lewrockwell.com/blog/lewrw/archives/85588.html Inflation and Bacteria], Michael Rozeff</ref><ref>[http://www.lewrockwell.com/blog/lewrw/archives/76920.html The Corporate State and the Tapeworm Economy], Catherine Austin Fitts</ref><ref name="death"/><ref>[http://www.wsws.org/articles/2007/dec2007/food-d22.shtml Naomi Spencer, World Socialist Website, "Severe food shortages, price spikes threaten world population", 22 December 2007]</ref><ref>[http://www.preparednesspro.com/blog/food-shortage-series-part-1/ Food Shortage Series],Kellene Bishop</ref> This has been referred to as the problem of "Peak Everything".<ref>[http://globaleconomicanalysis.blogspot.com/2011/03/oil-prices-are-double-edged-sword-peak.html Peak Everything?], MISH</ref><ref>[http://www.marketoracle.co.uk/Article28218.html "Peak Everything"], Jeremy Grantham</ref><ref>[http://www.zerohedge.com/news/2014-02-06/guest-post-limits-growth-out-doorstep-not-recognized Limits to Growth]</ref>

If for any reason the monetary system broke down, urban populations (nominally "rich" but poor in terms of direct access to food supply) could find basic foodstuffs either rationed or contaminated with lower quality products - or even unavailable at any price, ultimately resulting in food security becoming a major public policy issue - particularly if combined with oil supply shortages or an oil price spike,<ref>[http://www.marketoracle.co.uk/Article27874.html Horrific Global Food Crisis is Looming], Michael Snyder</ref><ref>[http://jsmineset.com/2011/02/24/in-the-news-today-791/ Collapse]</ref> as major population centers worldwide are almost entirely reliant on mass transportation of food from distant (or even foreign) locations to survive day-to-day.<ref>[http://www.marketoracle.co.uk/Article27874.html Horrific Global Food Crisis is Looming], Michael Snyder</ref><ref name="death"/><ref>[http://www.preparednesspro.com/blog/food-shortage-series-part-1/ Food Shortage Series],Kellene Bishop</ref><ref>[http://www.wsws.org/articles/2007/dec2007/food-d22.shtml Severe food shortages, price spikes threaten world population]</ref><ref>[http://www.nytimes.com/2010/12/18/business/global/18yuan.html?hpw Inflation in China]</ref><ref>[http://www.lewrockwell.com/blog/lewrw/archives/76920.html The Corporate State and the Tapeworm Economy], Catherine Austin Fitts</ref><ref>[http://jsmineset.com/2011/02/24/in-the-news-today-791/ Collapse]</ref><ref>[http://www.rickackerman.com/2011/04/bee-die-off-threatens-global-food-calamity/ Bee Die Off]</ref><ref>[http://globaleconomicanalysis.blogspot.com/2011/03/oil-prices-are-double-edged-sword-peak.html Peak Everything?], MISH</ref><ref>[http://lewrockwell.com/bonner/bonner602.html We're all going to die]</ref> In addition, fresh water (an essential commodity that is subsidised in its production by state-controlled entities in virtually every country around the world) appears to be rapidly diminishing through pollution and over-use, further threatening the global food supply in coming decades, resulting in what some commentators are describing as a global water crisis of "horrific" proportions.<ref>[http://lewrockwell.com/rep2/water-crisis-coming.html 25 Signs That a Horrific Global Water Crisis Is Coming], Economic Collapse Blog</ref><ref>[http://www.zerohedge.com/news/2013-03-06/guest-post-30-facts-coming-water-crisis-will-change-everything 30 Facts]</ref> Yemeni is at the cutting edge of these issues, having a simultaneous and inter-related water and drug crisis caused by economic stagnation, unemployment and social inequality.<ref>[http://www.youtube.com/watch?v=b0PgJ4fqpIM Khat]</ref> Recent "scandals" involving Mad Cow Disease in Britain, <ref>[http://www.centerforfoodsafety.org/campaign/food-safety/mad-cow-disease/other-resources/a-consumers-guide-to-mad-cow-disease/history-of-rendering-cattle-cannibalism-in-the-usa/ History of Rendering]</ref> the fraudulent supply of horse meat sold as beef in Europe,<ref>[http://www.theaustralian.com.au/news/world/horsemeat-scandal-a-global-conspiracy/story-e6frg6so-1226574880191 Horsemeat a global conspiracy]</ref> rat poison found in Polish dairy products<ref>[http://www.wbj.pl/article-61746-scandals-rock-polish-food-exports.html Scandals Rock Polish Food Exports]</ref> and rat meat fraudulently sold as lamb in China<ref>[http://www.zerohedge.com/news/2013-05-03/forget-horse-meat-or-fake-tuna-rat-meat-being-sold-lamb-china Rat Meat Sold as Lamb in China]</ref> could be seen as the logical conclusion of Rowbotham's analysis, as economic pressures build to systematically debase the quality of inputs throughout the food chain as producers fight the effects of cost-push inflation and try to satisfy the need for ever-increasing productivity in the industrialized food industry by systematically debasing their products until they are not fit for human consumption, but are allowed to be consumed by the authorities anyway because of the urgent need to feed the general population within their shrinking incomes.<ref>[http://www.edmundconway.com/2013/02/horse-meat-scandal-the-economics/ Horse meat scandal: the economics]</ref><ref>[http://www.theaustralian.com.au/news/world/horsemeat-scandal-a-global-conspiracy/story-e6frg6so-1226574880191 Horsemeat a global conspiracy]</ref> For example, it is alleged that Mad Cow Disease was caused by British authorities reducing heating standards in the waste meat rendering process to reduce the cost of food production in Britain. Food scandals are becoming so prevalent a new term "Food Fraud" has become popular to describe this escalating phenomenon, mirroring monetary fraud in the wider economic system.<ref>[http://www.zerohedge.com/news/2013-05-03/forget-horse-meat-or-fake-tuna-rat-meat-being-sold-lamb-china Rat Meat Being Sold as Lamb in China]</ref> If Rowbotham's analysis is correct, these food contamination and food debasement scandals will become ongoing and endemic in coming years, but may be censored by the authorities in future to avoid widespread protests.<ref>[http://www.zerohedge.com/news/2013-02-11/guest-post-more-stealth-inflation-maker%E2%80%99s-mark-slashes-alcohol-content More Stealth Inflation]</ref><ref>[http://www.edmundconway.com/2013/02/horse-meat-scandal-the-economics/ Horse meat scandal: the economics]</ref><ref>[http://www.zerohedge.com/contributed/2013-02-14/hidden-inflation-everywhere-watered-down-bourbon-horse-meat-chili Hidden Inflation Everywhere]</ref><ref>[http://en.wikipedia.org/wiki/2008_Chinese_milk_scandal Chinese Milk Scandal]</ref> This has already occurred in China with authorities trying to censor reports of toxic melamine in Chinese milk products<ref>[http://en.wikipedia.org/wiki/2008_Chinese_milk_scandal Chinese Milk Scandal]</ref> and in the UK with British authorities downplaying or delaying information relating to the huge scale of the horse meat scandal.<ref>[http://www.youtube.com/watch?v=SxZtfi2pYNo&list=SPPszygYHA9K2ZtV_1KphSugBB7iZqbFyz&index=6 Horsemeat Burgers], Max Keiser</ref> Max Keiser has made a direct connection between stealth monetary debasement throughout the banking system and stealth debasement of inputs throughout the British food chain.<ref>[http://www.youtube.com/watch?v=SxZtfi2pYNo&list=SPPszygYHA9K2ZtV_1KphSugBB7iZqbFyz&index=6 Horsemeat Burger]</ref> Quality adjustments in official CPI measurements often ''reduce'' the rate of inflation by assuming quality ''improvements'' - however no government has taken into account these food scandals in ''increasing'' the effective rate of inflation by taking into account dramatic ''reductions'' in the quality of food production.<ref>[http://www.abs.gov.au/websitedbs/webfaq.nsf/home/consumer+price+index+faqs CPI FAQs]</ref><ref>[http://www.econ.rochester.edu/people/BilsPapers/growth_qje_revision_August_2008.pdf BLS paper on CPI adjustments for quality]</ref><ref>[http://www.zerohedge.com/news/2013-03-02/first-horsemeat-trading-now-59-tuna-sold-us-isn%E2%80%99t-tuna 59% Of Tuna Isn't Tuna]</ref> If the dramatic degradation in the quality of food production was fully taken into account, it is likely that "true" inflation would be measured far in excess of official figures, and may in some instances (such as with the UK horse meat scandal) be reaching something similar to hyperinflation in some years, as food that changes from "beef" to "horse meat" is effectively a tiny fraction of the quality of the product of only a few years or months ago.<ref>[http://www.youtube.com/watch?v=SxZtfi2pYNo&list=SPPszygYHA9K2ZtV_1KphSugBB7iZqbFyz&index=6 Horsemeat Burgers], Max Keiser</ref>

Others consider that the core problem is not food security, nor overpopulation, nor environmental destruction, nor excessive carbon emissions due to non-pricing of energy producing externalities, nor excessive "specialization" of labor in the midst of monetary dysfunction, but excessive government regulation, causing capital destruction.<ref>[http://mises.org/daily/5277/When-Capital-Is-Nowhere-in-View When Capital Is Nowhere In View], Jeffrey Tucker</ref><ref>[http://www.garynorth.com/public/8071.cfm Population Growth as Propaganda], Gary North</ref><ref>[http://www.marketoracle.co.uk/Article39449.html An Orwellian America], Gordon T Long</ref>

The fundamental problem with the current monetary system that all Austrian economists agree on is that in the midst of constant credit creation and monetary dysfunction is it ''impossible'' to know what unsustainable [[malinvestment]]s are taking place in the economy, except to acknowledge that they ''must'' be taking place somewhere in the midst of unsustainable credit growth.<ref>[http://www.goldensextant.com/SavingtheSystem.html Saving the System], Robert K. Landis</ref>

===Effects on economic health: Ponzi scheme dynamics===

According to Michael Rowbotham and many Austrian theorists the expansion of money through debt is unsustainable and necessarily fuels and creates [[Austrian Business Cycle Theory|economic bubbles]].<ref>[http://mises.org/daily/5567/Hayeks-Ghost-Haunts-the-World Hayek's Ghost Haunts the World], Jeffrey Tucker</ref> This concentrates wealth in the hands of private banks as the populace is forced into [[debt]] simply to own a home and educate their children, hoping that the loans can be repaid by others going into debt in ''greater amounts'' later to purchase the assets they themselves have purchased through incurring large amounts of personal debt.<ref name="death"/> However, debt expansion leads to price appreciation of assets through speculation as the financial market becomes riskier and this process is unsustainable in the long run, with the last cycle of indebted being wiped out when they cannot find anyone to buy the assets they themselves have purchased by going into massive debt. Doug Noland, Steve Keen, Edward Chancellor, Bill Bonner and many others have compared this type of market to an enormous State-sponsored global monetary [[Ponzi scheme]].<ref>[http://www.debtdeflation.com/blogs/2008/12/13/the-worlds-biggest-ponzi-scheme/ The World's Biggest Ponzi Scheme], Steve Keen</ref><ref>[http://www.iimagazine.com/article.aspx?articleID=1234345 Ponzi Nation,"Who is Hyman Minsky?", para 6]</ref><ref>[http://www.marketoracle.co.uk/Article26678.html One Gargantuan Ponzi Scheme], Paul Hallyer</ref><ref>[http://prudentbear.com/dmdocuments/HowCouldIrvingFisherHaveBeenSoWrong.pdf How Could Irving Fisher Have Been So Wrong?], Doug Noland</ref><ref>[http://globaleconomicanalysis.blogspot.com/2010/08/former-fed-governor-mishkin-paid-124000.html Mishkin], MISH</ref><ref>[http://www.lewrockwell.com/bonner/bonner467.html Warning], Bill Bonner</ref>

The bust phase of this Ponzi-like [[business cycle]] occurs when "debt-based" money growth cannot continue because the debt levels are already at saturation levels, meaning growth in debt money slows or contracts, catching newly indebted businesses and consumers who are left out of the growth cycle, triggering a combined liquidity and solvency crisis when markets seize up due to a collapse in the artificially-supported prices in financial markets.<ref name="death"/><ref name="Ponzi Nation"/>

===Effects on the environment===
There are also critics in the left-wing and environmentalist camps who contend fractional reserve banking (by creating a necessity for indefinite [[economic growth]]) leads to environmental destruction and a sudden, catastrophic depletion of the earth's natural resources as the unsustainable, exponential consumption of the world's scarce natural resources reaches its inevitable limits.<ref>David Korten, ''Agenda For A New Economy'', Berret-Koehler, 2009</ref><ref>[http://www.monbiot.com/archives/2004/10/06/no-longer-obeying-orders/ George Monbiot], about five sixths of the way down</ref>

===Inherent problems with the system===

Some monetary reformers predict that there will be an increased incidence of financial crises in the developed world, as economic and population growth inevitably slow and as the success of financial sector lobbying results in increased tax loopholes and a reduction in effective redistributive [[tax]]es which, combined with the debt-legacy of the [[welfare state]], allows an intense and unsustainable concentration of wealth and political power in the financial services sector.<ref name="death">{{cite book |last= Rowbotham |first= Michael |title= The Grip of Death: A Study of Modern Money, Debt Slavery and Destructive Economics | year= 1998 |publisher= Jon Carpenter Publishing |isbn= 9781897766408 }}</ref><ref>[http://www.youtube.com/watch?v=TdVc40Mc9cQ&feature=related Andrew Sheng, INET presentation]</ref><ref>[http://mises.org/daily/6653/How-Central-Banks-Cause-Income-Inequality Central Banks Cause Income Inequality]</ref>

Some monetary reformers argue that perverse incentives in the financial services industry lead to collusive relationships between governments and bankers which are economically and socially destablizing in the long run.<ref>[http://mises.org/media/4014 The Economics of Legal Tender Laws], Jorg Guido Hulsmann</ref>

Given that the financial system requires ever higher levels of indebtness from the general populace for its solvency, it is vital that the indebted "victims" who must sink deeper into debt for the system to survive do so voluntarily and willingly and are not made aware of the consequences of purchasing consumables with debt money.<ref name="death">{{cite book |last= Rowbotham |first= Michael |title= The Grip of Death: A Study of Modern Money, Debt Slavery and Destructive Economics | year= 1998 |publisher= Jon Carpenter Publishing |isbn= 9781897766408 }}</ref> Some isolated politicians have previously highlighted the fact that mainstream media organizations appear to downplay or minimize the seriousness of deficit spending by government and debt-sourced spending of all kinds.<ref>[http://www.senate.gov/~budget/democratic/statements/2005/fs_reconciliationfloorstmt102005.pdf Speech by Senator Kent Conrad (D-ND) on October 20, 2005 regarding the "misleading" reporting of deficit spending by the mainstream media]</ref> Euphemisms for debt and personal and national bankruptcy associated with debt have been developed to delay a mass panic away from government bonds or debt. For example, the associated growth of debt-based derivatives during the upward phase of the debt money cycle was referred to as "[[innovation]]" in financial markets.<ref>[http://www.nytimes.com/2007/12/03/opinion/03krugman.html?em&ex=1196917200&en=ac60abcdbd977d07&ei=5087%0A Innovating Our Way to Financial Crisis, by Paul Krugman]</ref>

[[Bankruptcy]] laws differ to a small degree in different jurisdictions but in all developed economies unpaid debt results in legal penalties, property confiscation on behalf of the creditor and income [[sequestration]]. Although in Christian, Jewish and Muslim religious practice there have been traditions of debt relief or laws against [[usury]], in no modern Western jurisdiction are any debts periodically forgiven or cancelled in recognition of the inherent impossibility of repaying debts in circumstances where the debt-based monetary cycle has inevitably resulted in too little new [[debt money]] being injected into the [[money supply]] to pay for the currently outstanding debts.<ref>[http://www.nakedcapitalism.com/2007/11/new-bankruptcy-law-backfires-by.html Bankruptcy law backfires]</ref>

On a national level, if the issuance of [[government bonds]] becomes unsustainable, sovereign [[bankruptcy]] can occur - and has occurred many times in history.<ref>[http://mises.org/daily/4869 Can the Fed Become Insolvent?], Robert Murphy</ref><ref>[http://elainemeinelsupkis.typepad.com/money_matters/2007/10/greenspaniel-an.html Greenspaniel and U.S. bankruptcy]</ref><ref>[http://www.prudentbear.com/index.php/thebearslairview?art_id=10493 Dee-Fault!], Martin Hutchinson, Prudent Bear</ref> [[Sovereign debt]] crises due to the inability of nations to pay interest on [[government bonds]] have occurred frequently and regularly in the third world and less frequently (every 30 years or so) in the first world as a result of high levels of unsustainable public debt - often because private debts are assumed by a corrupt government through large private bank bailouts.<ref>[http://www.dailymail.co.uk/debate/article-1331076/Ireland-bailout-Lets-frank-7bn-bunch-liars-crooks-bunglers.html Ireland Bailout], Alex Brummer</ref><ref name="Willie_Misdiagnosis">[http://www.marketoracle.co.uk/Article24543.html QE2 and the Great Economic Misdiagnosis], Jim Willie, November 24, 2010.</ref> The [[Latin American debt crisis]] is an example of sovereign debt levels becoming unsustainable, resulting in a [[currency crisis]] and economic collapse, as [[interest rates]] rise precipitously due to the inability of the national government to attract financiers to purchase new [[government bonds]] to inject new debt money into the ailing economy.<ref name="Willie_Misdiagnosis" />

At such times, it is the responsibility of the [[IMF]] to come in as a kind of supranational [[central bank]] to mediate between the national government and international financiers.<ref>[http://globaleconomicanalysis.blogspot.com/2011/05/imf-chief-pulled-from-plane-in-new-york.html Time to Dissolve the IMF], MISH</ref> The role of the [[IMF]] as [[central bank]] to the world has similar responsibilities and risks inherent in [[central bank]]ing which are described below in relation to the role of the [[Federal Reserve]]. If the [[IMF]] repeatedly intervenes to save financiers from loss when sovereign bankruptcy occurs, this has a tendency to induce [[moral hazard]] and can encourage the financing of reckless government spending and borrowing.<ref>[http://www.rgemonitor.com/41 IMF Reform and International Lender of Last Resort, RGE Monitor]</ref><ref>[http://info.interactivist.net/article.pl?sid=02/11/07/199213&mode=thread&tid=8 Banking Bunkum, by Henry C.K. Liu]</ref><ref name="Willie_Misdiagnosis" />

A [[single currency]] regime such as the [[Euro]] can mask national liquidity or solvency crises, by ensuring that a national currency is not quickly exchangeable for another, thereby restricting the ability of national governments to depreciate their currencies and cutting off the possibility that the real value of [[government bond]] interest repayments could decline relative to other currencies.<ref>[http://www.dailymail.co.uk/news/article-1316442/Anglo-Irish-Bank-bail-Will-Irish-economic-meltdown-hit-UKs-fragile-recovery.html Irish Meltdown], UK Mail On-line,</ref><ref>[http://www.marketoracle.co.uk/Article24459.html Ireland Bailout Consequences for Britain, Portugal Next?], Nadeem Walayat</ref><ref name="Willie_Misdiagnosis" /><ref>[http://news.goldseek.com/RichardDaughty/1192374060.php The Mogambo Theory of Currency Relativity]</ref><ref>[http://www.youtube.com/watch?v=IvJEJEGzeU8&feature=player_embedded#! Putin ditches dollar], RTTV</ref> This may however increase the risk of bond default where indebted national governments cannot pay back the interest payments in the denominated common currency.<ref>[http://www.dailymail.co.uk/news/article-1316442/Anglo-Irish-Bank-bail-Will-Irish-economic-meltdown-hit-UKs-fragile-recovery.html Irish Meltdown], UK Mail On-line,</ref><ref>[http://blog.mises.org/15129/bagus-explains-the-ecb-and-the-euro/ The Tragedy of the Euro], Philipp Bagus</ref>

===Types of downturns===
{{main|Austrian Business Cycle Theory}}
[[Austrian Business Cycle Theory]] states that artificially low interest rates set by any coercive price-fixing entity will inevitably stimulate malinvestment in the wrong capital projects which will inevitably lead to an unsustainable boom followed by a bust.<ref>[http://mises.org/daily/5164/The-Cure-Low-Interest-Rates-Is-the-Disease The Cure (Low Interest Rates) Is The Disease], Thorsten Polleit</ref> However, the precise nature of the downturn and the way in which losses are allocated within the economy are both dependent on the actions government and bankers take to forgive debt or control credit and there are two main kinds of debt money contraction that can cause a collapse in the value of inflated assets.

A "credit squeeze" occurs where new debt money is difficult to access without a high [[credit rating]]. At such times marginal borrowers, or those who have borrowed at the end of any debt-induced asset bubble, get "squeezed" out of further borrowing and a contraction in the growth of new debt money occurs, triggering a slow down in the growth of inflated assets. Those assets can then be "harvested" by the [[private bank]]s through widespread [[foreclosure]] or [[bankruptcy]] and re-sold to those with the money to buy the distressed assets.<ref name="marketoracle.co.uk">[http://www.marketoracle.co.uk/Article2882.html Market Fundamentalism, by Richard C. Cook]</ref>

A "credit crunch" occurs where new debt money is not available at any [[interest rate]] - even for those with previously acceptable credit ratings - due to widespread insolvency in the banking system. At such times, it is the banking system itself that is [[insolvent]] and other financial institutions (including overseas financiers) become reluctant to lend to the domestic banking system, resulting in the domestic banking system being unable to issue loans even to credit worthy borrowers.<ref>[http://en.wikipedia.org/wiki/Credit_crunch Credit crunch], Wikipedia definition</ref>

At any stage during the downward spiral of a "credit crunch", the [[central bank]] in a modern economy can try to save the system from complete economic meltdown by purchasing (either indefinitely or temporarily) the failed debts of the private banks.<ref>[http://www.youtube.com/watch?v=PTUY16CkS-k&feature=player_embedded#! Quantitative Easing Explained]</ref><ref>[http://www.marketoracle.co.uk/Article24489.html Does the Fed Create Money?] Michael Pento</ref><ref>[http://www.telegraph.co.uk/money/main.jhtml?view=DETAILS&grid=A1YourView&xml=/money/2007/12/19/ccom119.xml ECB's mind-numbing cash injection]</ref> This involves swapping depreciating "failed" assets with hard cash, thereby allowing the banks to maintain their net asset position and continue to give the impression of solvency to their auditors and depositors. However, doing so results in cash being transferred to the private banks in exchange for [[bad debt]], thereby violating the general economic precept to avoid [[moral hazard]] and effectively makes liquid the failed lending decisions of the [[private bank]]s.<ref>[http://globaleconomicanalysis.blogspot.com/2011/06/prudently-managed-banks-victimized-by.html Prudent Banks Victimized], MISH</ref><ref>[http://www.rgemonitor.com/blog/roubini/228924/ Privatizing Profits and Socializing Losses, by Nouriel Roubini]</ref> In the U.S. banking system this is called "opening the Fed discount window", where the [[Federal Reserve]] temporarily purchases the failed investment portfolios of distressed private banks in exchange for cash. However, this rescue measure may only delay, rather than avoid, the realization of losses in the banking system, as the central bank cannot "force" new borrowing into the system to inject new debt money into the money supply. Somebody has to be a [[counterparty]] to borrow the debt money that is being offered. If all market participants realize a "[[bubble (economics)|bubble]]" has formed in assets markets, there will be few (or no) buyers for new debt money, as no one wants to borrow to buy inflated assets no one else will buy. Money markets can therefore remain illiquid even with intense [[central bank]] support.<ref>[http://www.prudentbear.com/index.php/creditbubblebulletinview?art_id=10511 Favorable or Unfavorable], Doug Noland, Prudent Bear</ref>

Furthermore, banks can go bust even with intense central bank support, if the issue is not one of liquidity, but one of solvency.<ref>[http://www.ft.com/cms/s/0/233ae764-abef-11dc-82f0-0000779fd2ac.html Central Banks have No Plan]</ref><ref>[http://www.rgemonitor.com/blog/roubini/233120 Central Banks get desperate]</ref><ref>[http://www.youtube.com/watch?v=VMngK0t5WkY $20 Trillion in Bad Debt], Max Keiser</ref><ref>[http://www.marketoracle.co.uk/Article27686.html Bernanke's QEx Money Printing Box], Gordon T. Long</ref>

===Market meddling and pushing on a string===
Some monetary economists describe the opening of the Fed discount window after the bursting of an asset bubble and swapping of "junk" with new money as "pushing on a piece of string", as this measure does not solve the key problem – creating new credit (or debt money) to keep up the growth in the money supply and maintain the required level of liquidity in credit markets.<ref>[http://www.mises.org/story/2695 Don't Discount the Fed Discount Window]</ref><ref>[http://www.federalreserve.gov/Pubs/FEDS/2004/200401/200401pap.pdf Monetary Policy in Deflation: The Liquidity Trap in History and Practice]</ref> This is because unlimited central bank money and low interest rates ''allow'' credit creation, but cannot ''force'' it into the system. In order for any new debt money to be created, someone has to ''borrow'' the excess reserves in order for the money to be injected into the system. With an endogenous money system, money is only created if someone wants to borrow money from a bank. If corporations and individuals are already heavily indebted (or insolvent after the bursting of a debt-induced bubble) there are no credit-worthy borrowers to lend to. This means there are no new buyers at the margin to keep asset prices at high levels. If there are no new marginal buyers, "liquidity" - or debt growth - dries up and volumes and prices drop suddenly, forcing liquidation and creating a sudden cascading effect in highly leveraged markets very similar to the end of an unsustainable Ponzi scheme. The only ones able to stimulate the economy are the tiny minority of bankers who have been bailed out by the central bank and even if they spent lavishly to try to "help" the economy, this would in no way compensate for the lack of spending in the general economy.

To encourage fresh borrowing, central banks generally combine these rescue measures with an interest rate cut to encourage more new borrowing to allow the existing (failed) debts to be [[liquidate]]d at or close to their original value. When [[Alan Greenspan]] repeatedly resorted to this tactic to revive illiquid [[money market]]s this became known in the market as the "[[Greenspan put]]", as the effect of these repeated reductions in interest rates was similar to a [[put option]] in the [[stockmarket]], insuring [[bank]]s' lending mistakes would be covered up by the Federal Reserve.<ref>[http://www.iie.com/publications/wp/02-1.pdf Moral Hazard and the "Greenspan Put"]</ref>

When interest rates cannot go any lower (the so-called "zero bound" monetary problem) and people still will not - or cannot - load themselves up with more debt, then to stave off a collapse of market prices due to the drying up of marginal buyers at inflated debt-saturated prices central banks have resorted to "Quantitative Easing" - which is the abandonment of interest rate setting and the targeting of bulk purchases of bank assets to artificially pump up their price and keep the banking system solvent.<ref>[http://www.marketoracle.co.uk/Article38855.html QE for Dummies], Dr Martenson</ref> In addition, the Keynesian solution is to run large public deficits and indebt future generations (who, they hypothesize, are more likely to be able to pay through increased future growth).<ref>[http://www.zerohedge.com/news/2013-02-09/paul-krugman-we-should-kick-can-down-road-it%E2%80%99s-responsible-thing-do "Kick the Can Down the Road"]</ref><ref>[http://www.nytimes.com/2010/12/26/business/26view.html?_r=1&scp=1&sq=shiller&st=cse Stimulus Without More Debt], Robert Shiller</ref> Fabian socialists, and Keynesian economists such as Paul Krugman and Robert Shiller, argue that governments must take charge of the responsibility of spending more (and taking on more debt) on behalf of the public (who are too fearful to take on more debt themselves) in order to compensate for the immediate and urgent ''present'' insufficiency in total private consumption.<ref>[http://www.zerohedge.com/news/2013-02-09/paul-krugman-we-should-kick-can-down-road-it%E2%80%99s-responsible-thing-do "Kick the Can Down the Road"]</ref><ref>[http://www.nytimes.com/2011/09/05/opinion/the-fatal-distraction.html?src=me&ref=general The Fatal Distraction], Paul Krugman</ref><ref>[http://www.nytimes.com/2010/12/26/business/26view.html?_r=1&scp=1&sq=shiller&st=cse Stimulus Without More Debt], Robert Shiller</ref><ref>[http://mises.org/daily/5616/Is-the-Need-for-Stimulus-Undeniable Is the Need for Stimulus "Undeniable"?], Hunter Lewis</ref> Paul Krugman and Robert Reich are prominent advocates of the policy of spending trillions of government money to help stimulate the economy, if spending billions does not work.<ref>[http://www.realclearpolitics.com/video/2011/09/01/reich_government_has_to_spend_more_to_get_out_of_debt.html Reich: Government Has To Spend More To Get Out Of Debt]</ref><ref>[http://www.nytimes.com/2010/06/21/opinion/21krugman.html?dbk Budget Deficits], Paul Krugman</ref><ref>[http://globaleconomicanalysis.blogspot.com/2010/10/krugman-and-inevitable-i-told-you-so.html Krugman], MISH</ref><ref>[http://krugman-in-wonderland.blogspot.com/2010/11/inflation-prisoner.html The Inflation Prisoner], William Anderson</ref> For economists such as Paul Krugman, if the "more and more government spending" solution does not work initially, it is a sign that not enough government money has been spent.<ref>[http://www.lewrockwell.com/sowell/sowell44.1.html Fed Up With the Fed?], Thomas Sowell</ref><ref>[http://www.nytimes.com/2010/12/20/opinion/20krugman.html?hp When Zombies Win], Paul Krugman, NY Times</ref><ref>[http://globaleconomicanalysis.blogspot.com/2010/10/krugman-and-inevitable-i-told-you-so.html Krugman], MISH</ref> It is his view that the "deflationary" Japanese recession from 1991/2 could have been cured by the Japanese government going into even more debt than the current net debt to GDP ratio of 110%.<ref>[http://www.nytimes.com/2010/06/21/opinion/21krugman.html?dbk Budget Deficits], Paul Krugman</ref><ref>[http://www.economist.com/node/15867844 Japan's debt-ridden economy], The Economist</ref> Although some commentators have puzzled over exactly which group Krugman blames for the crisis, Krugman repeatedly calls for the government "to do more" and "spend more" as the "responsible" way out of the crisis, regardless of the true culprits or cause of the crisis.<ref>[http://www.zerohedge.com/news/2013-02-09/paul-krugman-we-should-kick-can-down-road-it%E2%80%99s-responsible-thing-do "Kick the Can Down the Road"]</ref><ref>[http://www.nytimes.com/2011/08/08/opinion/credibility-chutzpah-and-debt.html?_r=1&hp Credibility, Chutzpah and Debt], Paul Krugman</ref><ref>[http://www.thedailybell.com/2271/Shock-Krugman-Turns-on-Elites.html Shock Krugman Turns on Elites], The Daily Bell</ref><ref>[http://www.nytimes.com/2011/04/11/opinion/11krugman.html?_r=2&hp Obama Is Missing], Paul Krugman</ref> When pressed to find culprits he identifies "extremist" Republicans and, somewhat paradoxically, those who call for ''fiscal restraint'' to be the real source of the debt crisis and the downgrading of US sovereign debt.<ref>[http://www.nytimes.com/2011/08/08/opinion/credibility-chutzpah-and-debt.html?_r=1&hp Credibility, Chutzpah and Debt], Paul Krugman</ref> How ''increasing'' the debt load will solve the debt problem is never explained, apart from Krugman repeatedly stating that the "long-term" debt problem is not as important as the immediate and urgent "lack of spending" problem.<ref>[http://www.zerohedge.com/news/2013-02-09/paul-krugman-we-should-kick-can-down-road-it%E2%80%99s-responsible-thing-do "Kick the Can Down the Road"]</ref> Krugman has never advocated the simple solution of debt default as the way to solve the debt crisis, despite de-emphasizing the scale of the debt by arguing that we (mostly) "owe it to ourselves".<ref>[http://krugman.blogs.nytimes.com/2011/12/28/debt-is-mostly-money-we-owe-to-ourselves/ Debt is mostly money we owe to ourselves]</ref> If this was the case, debt default would be the easiest solution. On the other hand, Paul Krugman has yet to clearly identify a country or a time when government spending became excessive or was out of control and resulted in too much accumulation of debt and malinvestment during an economic slowdown. He has intimated that, perhaps, the Greek government may have spent too much, but he treats that as an isolated case and not applicable to the rest of Europe or the United States, despite some countries having comparable debt levels to Greece's.<ref>[http://www.nytimes.com/2011/09/12/opinion/an-impeccable-disaster.html?_r=1&hp An Impeccable Disaster], Paul Krugman</ref> He has also never explained or written about what happens ''after'' government stimulus spending inevitably stops, which Austrians argue would inevitably result in an even bigger slump if it is not continually replaced with something similar or bigger.<ref>[http://krugman.blogs.nytimes.com/2013/05/09/the-moral-equivalent-of-space-aliens/ Space Aliens], Paul Krugman. Quote: "To almost everyone’s surprise, Japan — Japan! — has emerged as the advanced country most willing to break with austerian orthodoxy and try a combination of aggressive monetary and fiscal stimulus. The verdict on Abenomics is, of course, still out, although early indications are good. But how did this happen? David Pilling , writing in the FT, suggests that it was the double shock of the 2011 tsunami and China’s overtaking of Japan as the number 2 economy by market value. These shocks, he argues, broke through the fatalism and convinced the Japanese elite that something must be done. Long-time readers know that I once joked that what we needed in America was a fake threat from space aliens, which would jolt us into action on stimulus; '''if the aliens were later revealed as a hoax, no matter'''. Well, it looks as if Japan has found the moral equivalent of space aliens. Good for them." (emphasis added)</ref> If further attempts at artificial government-induced "stimulus" ''are'' attempted, Austrians argue that this pointless exercise would simply further distort capital structures throughout the economy. They therefore see the slump as curative, even if it results in bank runs and financial crises. They see light at the end of the depression, once the re-pricing of capital goods and financial assets returns the economy to a sound, stable footing - provided ''no bailouts occur, debts are liquidated and reduced or cancelled and provided asset prices are permitted to fall''.<ref>[http://www.zerohedge.com/news/guest-post-keynesian-solutions-after-total-failure-try-try-again Keynesian Solutions Total Failure]</ref><ref>[http://dailyreckoning.com/the-pain-of-restoring-investor-confidence/ The Pain of Restoring Investor Confidence], Bill Bonner</ref><ref>[http://dailyreckoning.com/government-spending-and-the-path-to-money-printing/ Government Spending and the path to Money Printing], Bill Bonner</ref><ref>[http://www.prudentbear.com/index.php/featuredcommentaryview?art_id=10485 Krugman Is Eating America Alive], Neeraj Chaudhary, Prudent Bear</ref><ref>[http://www.marketoracle.co.uk/Article25163.html Keynesian models], Robert Murphy</ref><ref>[http://krugman-in-wonderland.blogspot.com/2010/11/inflation-prisoner.html The Inflation Prisoner], William Anderson</ref><ref>[http://www.lewrockwell.com/north/north925.html Yes, Virginia, There Really Is a Free Lunch], Gary North</ref><ref>[http://mises.org/daily/5257/They-Want-Us-to-Love-the-Fed They Want Us to Love the Fed], William L. Anderson</ref><ref>[http://lewrockwell.com/rockwell/many-collapses-of-keynesianism189.html The Many Collapses of Keynesianism], Lew Rockwell,</ref>

Although there is active debate as to whether Keynesian "stimulus" policy (spending money and thereby indebting future generations, with the government spending debt-sourced money on projects the private sector would not touch) can actually help the economy long term,<ref>[http://www.zerohedge.com/news/2014-01-30/fed-has-fingers-thumbs-scales-finance-grant-tells-santelli-and-it-will-end-badly It Will End Badly]</ref><ref>[http://www.mises.org/daily/6357/Feds-Policies-Expose-Mainstream-Fallacies Mainstream Fallacies], Frank Shostak</ref><ref>[http://www.zerohedge.com/news/guest-post-keynesian-solutions-after-total-failure-try-try-again Keynesian Solutions Total Failure]</ref><ref>[http://dailyreckoning.com/the-pain-of-restoring-investor-confidence/ The Pain of Restoring Investor Confidence], Bill Bonner</ref><ref>[http://dailyreckoning.com/government-spending-and-the-path-to-money-printing/ Government Spending and the path to Money Printing], Bill Bonner</ref><ref>[http://www.prudentbear.com/index.php/featuredcommentaryview?art_id=10485 Krugman Is Eating America Alive], Neeraj Chaudhary, Prudent Bear</ref><ref>[http://www.marketoracle.co.uk/Article25163.html Keynesian models], Robert Murphy</ref><ref>[http://krugman-in-wonderland.blogspot.com/2010/11/inflation-prisoner.html The Inflation Prisoner], William Anderson</ref><ref>[http://www.lewrockwell.com/north/north925.html Yes, Virginia, There Really Is a Free Lunch], Gary North</ref><ref>[http://mises.org/daily/5257/They-Want-Us-to-Love-the-Fed They Want Us to Love the Fed], William L. Anderson</ref><ref>[http://lewrockwell.com/rockwell/many-collapses-of-keynesianism189.html The Many Collapses of Keynesianism], Lew Rockwell,</ref> there is no argument that this would undoubtedly help the present group of private bankers, as increased income from the interest payments on new government bond issuance offsets the decline in private sector debt and allows banks to survive when otherwise they may face collapse due to the fatal impairment of their balance sheets through private debt write-offs after an unsustainable debt-fuelled bubble bursts.<ref>[http://georgewashington2.blogspot.com/2010/08/quantitative-easing-wont-help-economy.html QE won't help the economy]</ref><ref>[http://moneymorning.com/2010/11/19/federal-reserves-quantitative-easing-strategy-save-the-us-economy/ QE won't save the economy]</ref>

As government debt is effectively an asset on the books of the banks, increasing Treasury bond issuance necessarily increases the profitability and net asset position of the debt-issuing banks - at least until government insolvency or mass tax evasion renders the value of those bonds worthless.<ref>[http://www.marketoracle.co.uk/Article25313.html Asset Speculation and Capital Destruction], Jim Willie</ref><ref>[http://www.prudentbear.com/index.php/featuredcommentaryview?art_id=10485 Krugman Is Eating America Alive], Neeraj Chaudhary, Prudent Bear</ref>

Perhaps in recognition that increasing debt to solve a debt crisis does not work even in the short term, in early 2013 Krugman resorted to advocating the coining of a debt-free trillion dollar platinum coin to solve the debt crisis and revive the economy.<ref>[http://www.thenewamerican.com/economy/economics/item/14238-obama%E2%80%99s-trillion-dollar-coin-exposes-federal-reserve-scam Obama’s Trillion-Dollar Coin Exposes Federal Reserve Scam], Alex Newman, ''New American''</ref><ref>[http://webofdebt.wordpress.com/2013/01/18/the-trillion-dollar-coin-joke-or-game-changer/#more-5323 The Trillion Dollar Coin], Ellen Hodgson Brown</ref> Some Austrians have argued Krugman's support of the trillion dollar coin is the logical ''reductio ad absurdum'' of Keynesian economics.<ref>[http://bastiat.mises.org/2013/01/trillion-dollar-coins-and-alien-invasions/ Trillion Dollar Coins and Alien Invasions], Daniel Sanchez</ref>

===Inequities in the debt-based monetary system===
Many inequities arise because of the damage an overly leveraged financial system and big spending government can have on the real economy.<ref>[http://www.marketoracle.co.uk/Article26581.html Ten Reasons The Banksters Got Away With It], Danny Schechter</ref><ref>[http://www.marketoracle.co.uk/Article28949.html United States of Denial], James West</ref> The standard government strategy to help the banks out of the "tailspin" of an insolvency crisis follows a standard chronology:

The government first tries to stimulate the economy and spend money into the markets directly without individuals needing to borrow and spend, thereby "inflating" its way out of economic crisis by causing asset prices to rise and bank balance sheets to appear solvent. It currently does this principally by borrowing newly created money from the central bank and then spending this new money on projects that the private sector is not already engaged in.<ref>[http://www.marketoracle.co.uk/Article25964.html QE is Nothing New], Mike Hewitt</ref><ref>[http://www.mises.org/daily/6357/Feds-Policies-Expose-Mainstream-Fallacies Mainstream Fallacies], Frank Shostak</ref>

Unfortunately, there is no easy solution to an economy-wide insolvency crisis caused by excessive credit expansion.<ref>[http://www.zerohedge.com/news/2013-11-07/marc-faber-warns-karl-marx-was-right Karl Marx Was Right], Marc Faber</ref><ref>[http://www.prudentbear.com/index.php/creditbubblebulletinview?art_id=10511 Favorable or Unfavorable], Doug Noland, Prudent Bear</ref> In a sound money system the credit would not have been created, so dealing with the problem once created is inherently flawed. If a slow down of money and credit occurs, this exposes those who came late to the boom and transfers assets to the banking system via widespread insolvency. If the central bank encourages even more lending or the government spends more money this creates more distortions and uncertainties in the market, hampering long term investment. Government spending is often attempted as a way to stave off widespread insolvencies but this only further distorts the economy through widespread malinvestment.<ref>[http://mises.org/store/Rollback-P10449.aspx ''Rollback''], Thomas Woods</ref> Later, after the immediate crisis, when tax receipts from the private sector decline due to reduce private investment, governments are often forced to reduce basic social services or welfare to the poor to pay for the increased bond payments to bankers and other wealthy investors, making those least responsible and least able to pay for the crisis suffer wrenching economic hardship due to excessive public and private debt/credit creation.<ref>[http://www.marketoracle.co.uk/Article26581.html Ten Reasons The Banksters Got Away With It], Danny Schechter</ref><ref>[http://mises.org/store/Rollback-P10449.aspx ''Rollback''], Thomas Woods</ref>

Antal E. Fekete compares quantitative easing to the repeated supply of opium by an immoral drug dealer to a dependent drug addict:<ref>[http://www.marketoracle.co.uk/Article26339.html Silver and Opium], Antal E. Fekete</ref>

{{quote|The explanation for this self-destructing behavior is the addictive, debilitating and mind-corrosive nature of paper money, in direct analogy with that of opium. The high caused by administering the opium pipe to the patient (read: administering QE) had to be repeated when the effect faded by a fresh administration of more opium (read: more QE2).}}

Aside from the [[moral hazard]] issue, the key risk with [[quantitative easing]] is that the [[central bank]] exposes the financial system to disruptive inflation, as the growth in the [[money supply]] spirals out of control due to the need to save the [[bank]]s from themselves.<ref>[http://www.lewrockwell.com/north/north961.html Tiger], Gary North</ref><ref>[http://www.marketoracle.co.uk/Article27530.html The Fed Obliterates the Savings Ethic], Douglas French</ref> This eventually tends to precipitate a currency and/or government bond crisis, as the debt-based currency becomes completely dysfunctional when either the currency becomes worthless or when debtors - including government debtors - cannot even pay interest on the debt money.<ref>[http://www.marketoracle.co.uk/Article25964.html QE is Nothing New], Mike Hewitt</ref><ref>[http://www.marketoracle.co.uk/Article25313.html Asset Speculation and Capital Destruction], Jim Willie</ref><ref>[http://www.swlearning.com/economics/hall/hall-lieb2e-upd/ppt_lecture/exchange_rate_macro_policy.ppt Exchange Rates and Macroeconomic Policy]</ref><ref>[http://www.sciencedirect.com/science?_ob=ArticleURL&_udi=B6VGT-41WBFRG-1&_user=10&_rdoc=1&_fmt=&_orig=search&_sort=d&view=c&_acct=C000050221&_version=1&_urlVersion=0&_userid=10&md5=4e89075114dcdb58b503172ff1801bd2 Central Bank Intervention]</ref><ref>[http://www.federalreserve.gov/newsevents/speech/mishkin20071026a.htm Financial Instability and the Federal Reserve as a Liquidity Provider, by Frederic S. Mishkin]</ref>

For these reasons, a collapse in confidence in the [[solvency]] of the domestic banking system (and the central government) is one of the most complex and difficult policy issues any central government can face.<ref>[http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100008812/irelands-debt-servitude/ Ireland's Debt Servitude], Ambrose Evans-Pritchard, UK Telegraph</ref> If the central bank continues to try to save the current players in the banking sector by continually printing money and inflating its way out of the crisis, at some point hyperinflation suddenly appears, and has appeared many times in history.<ref>[http://mises.org/daily/4869 Can the Fed Become Insolvent?], Robert Murphy</ref><ref>[http://blog.mises.org/14626/quantitative-easing-explained/ Quantitative Easing Explained], YouTube video</ref>

Some commentators have observed that the media and the Fed have to constantly come up with new terms (such as "quantitative easing") to hide the fact that they are simply repeating the same failed policy of monetary inflation that corrupt sovereigns have deployed at the end of failed regimes many times over the millenia.<ref>[http://www.marketoracle.co.uk/Article25679.html Many Euphemisms for Money Creation], Thorsten Polleit</ref> This is also now referred to by some [[monetary reform]]ers and [[economist]]s as "socialism for the rich and capitalism for the poor", as many indebted [[consumers]] will still lose their [[house]]s and be declared [[bankrupt]] regardless whether or not the central bank intervenes to save marginal lenders who have been made [[insolvent]] through their mis-timing of the [[credit cycle]].<ref>[http://www.youtube.com/watch?v=ny6YI2JCP9Q&feature=player_embedded#at=147 Blood Starts Flowing on the Streets], Max Keiser interview with Gerald Celente</ref><ref>[http://www.rgemonitor.com/blog/roubini/228924/ Privatizing Profits and Socializing Losses, by Nouriel Roubini]</ref><ref>[http://www.beearly.com/pdfFiles/Satyajit%20Das.pdf Regulatory Debauchery by Satyajit Das]</ref> Future generations of innocent taxpayers may ultimately finance any [[bail out]] of reckless lenders, as the money used to fund any [[bail out]] will be funds diverted from the general revenue of the central government.<ref>[http://www.ft.com/cms/s/0/f4cf8426-654d-11dc-bf89-0000779fd2ac.html A run on the bank]</ref>

In times of crisis, some bankers still refer to [[Walter Bagehot]]'s 1873 commentary on monetary crises, ''Lombard Street'', in an attempt to gain insights into the way in which central bankers should revive illiquid banking systems.<ref>[http://www.prudentbear.com/index.php/thebearslairview?art_id=10513 The Evils of Crony Capitalism], Martin Hutchinson</ref><ref>[http://blogs.ft.com/economistsforum/2010/04/a-history-lesson-from-lombard-street-for-wall-street-in-2010/ History Lesson from Lombard Street], Roger Farmer, Ft.com</ref> However this old text may be outdated in circumstances where the community's debt limits have been reached and where the banking crisis arises from insolvency or environmental depletion rather than illiquidity.<ref>[http://www.youtube.com/watch?v=0KInB2rvgaY Eco Eco Disaster], Keiser Report</ref><ref name="Willie_Misdiagnosis" /><ref>[http://www.prudentbear.com/index.php/creditbubblebulletinview?art_id=10511 Favorable or Unfavorable], Doug Noland, Prudent Bear</ref> A prime example where aging demographics combined with reckless bank lending in a purely fiat debt-based monetary system resulted in economic problems which no amount of money printing or government spending could fix can be found in the case of the [[Japanese asset price bubble]].<ref>[http://www.economist.com/displaystory.cfm?story_id=10286992 The Japanese and American Bubbles: Been There, Done Some of That]</ref> Some believe the West will repeat the mistakes of the Japanese and the result will be worldwide monetary disorder and instability and economic decline.<ref>[http://dailyreckoning.com/destiny-is-demography/ Destiny is Demography], Bill Bonner</ref><ref>[http://www.economist.com/displaystory.cfm?story_id=10286992 The Japanese and American Bubbles: Been There, Done Some of That]</ref><ref>[http://www.prudentbear.com/index.php/creditbubblebulletinview?art_id=10508 Monetary Disorder], Doug Noland</ref><ref>[http://www.prudentbear.com/index.php/creditbubblebulletinview?art_id=10571 Crumbling Pillars], Doug Noland. Quote: "Whether it’s monetary or fiscal policy - at home or abroad – there seems to be confirmation everywhere that policymaking has become largely ineffectual and, increasingly, incapacitated. This is fundamental to my bearish thesis. With each passing market day it seems to take a greater leap of faith to believe that additional monetary and fiscal stimulus will ameliorate a sovereign debt crisis fomented by ultra-loose monetary and fiscal policies. Increasingly, it appears impossible for policies that fomented monetary instability to now somehow engender a return to market stability. Liquidity-challenged global markets are convulsing through a problematic period of de-risking and de-leveraging, and once such a process commences it basically has to run its course. Efforts to intervene in the marketplace, as we’ve been witnessing, are likely to beget only greater uncertainty and instability."</ref><ref>[http://www.youtube.com/watch?v=zbQq33iTsrw Rigged bank rates]</ref>

===Debt Saturation, Unstable Markets and the Keynesian Endpoint===

Keynesians often refer to Keynes' dictum "In the long run we are all dead" to justify artificially low interest rates and short-term stimulus spending by government to "kick start" a stalled economy where pre-existing private debt levels have caused spending to collapse. Tyler Cowen has responded to this Keynesian rejoinder with the following response:<ref>[http://www.nytimes.com/2011/03/06/business/06view.html The Fiscal Illusion], Tyler Cowan</ref>

{{quote|The famous Keynesian rejoinder, “In the long run we are all dead,” is less comforting when that long run comes into sight. Short-run planning is a hard carousel to stop, especially when there are frequent election cycles, but the federal government must act soon...

The technocratic Keynesian recommendation was to run deficits in bad times and surpluses in good times. But except for one stretch during the Clinton administration, this notion has been broken since the early 1980s. In the United States, at least, Keynesian economics has failed to find the necessary political institutions to enact and sustain a wise version of the theory.

Now that fiscal constraints are starting to bite, many politicians are afraid to reform or even to discuss changes in the largest problem areas...

Fiscal austerity may sometimes sound like a dogmatic religion, but fixed principles often help us do the right thing, especially when temptation beckons. Professor Buchanan argued that the real choice was between a religion of budget balance and a rule of illusion.

...the rigor of the numbers will soon sweep away the fiscal illusion. The only question is whether we will end the charade on our own terms or continue to play the fool.}}

Nassim Taleb posits that with increasing debt comes increasing fragility as markets end up standing on a "knife-edge" between precipitous currency devaluation due to money printing and widespread insolvency/depression due to slowing organic money supply growth.<ref>[http://www.zerohedge.com/news/2013-01-25/taleb-skin-game-and-his-disdain-public-intellectuals Nassim Taleb Interview on Anti-Fragile]</ref> It therefore becomes increasingly difficult for central banks to control volatility in heavily indebted world markets, until it ultimately becomes impossible to control.<ref>[http://www.zerohedge.com/news/2013-01-25/taleb-skin-game-and-his-disdain-public-intellectuals Nassim Taleb Interview on Anti-Fragile]</ref>

No current commentator predicts bankers, politicians or government employee unions will spontaneously reform themselves.<ref>[http://www.lewrockwell.com/lewrockwell-show/2011/03/27/193-gold-guns-and-getaway-plans/ Gerald Celente interview with Lew Rockwell]: Lew Rockwell: "When do you see social unrest coming to this country?" Gerald Celente: "I see more crime happening in this country, and social unrest at a much lower level. The people in this country don't have what it takes... This is a country of soccer mommies boys. We're prescription drug-addicted and we're junk food fat... Look at the way they dress, look at the way they talk, look how the Nation's become so Snooki-stupid."</ref> Noted commentator Bill Bonner and others have described politicians, welfare recipients, bankers and other tax beneficiaries as economic "zombies" obsessed with preserving their own coercively acquired incomes and unable to adapt to new economic realities. He has predicted that the "zombies" will continue to "steal" as much as possible and parasitically live off the productive efforts of others until the whole monetary system collapses.<ref>[http://dailyreckoning.com/the-coincidental-rise-of-oil-and-the-monetary-base/ The Coincidental Rise of Oil and the Monetary Base], Bill Bonner</ref><ref>[http://dailyreckoning.com/california-the-greece-of-the-us-financial-crisis/ California: The Greece of the U.S.], Bill Bonner</ref><ref>[http://dailyreckoning.com/zombies-born-of-government-spending/ Zombies Born of Government Spending], Bill Bonner</ref><ref>[http://www.zerohedge.com/article/not-program-salvage-greek-economy-its-program-pillage-bankruptcy Pillage Before Bankrupcty], Washington's Blog</ref> Some commentators have criticized so-called "zombie" bureaucracies such as the TSA as not only deadweights on the real productive economy, costing millions of tax dollars each year; their very existence hinders economic productivity.<ref>[http://mises.org/daily/5611/TSA-and-Unproductive-Labor TSA and Unproductive Labor], James E. Miller</ref> It is alleged that once these organizations are created and fed by government fiat, these "zombies" never die because there is no natural market mechanism to provide the necessary feedback signalling that they are unwanted by consumers. They grow only because they survive through government bureaucratic support and largesse - which comes from coercively acquired tax dollars or central bank produced fiat money. It is argued that the richest parasitic "zombies" (such as the CEOs and shareholders of the private security firms servicing the TSA's multi-million dollar government contracts) will continue to suck as much wealth from the productive economy as possible and then move on to the next host country with their real wealth converted into land, precious metals and jewels and other real assets.

The difficulty with any attempt at reform measures is that the "Ponzi" elements of finance are inextricably tied to pension funds and "real" elements in the economy, making it impossible to eliminate the "cancer" without damaging the wealth-creating structures as well.<ref>The term "cancer" is specifically mentioned in [http://www.pytheas.net/docs/Laissez-faire-and-policymakers.pdf Laissez-faire, investment banks and policy makers], Pytheas Market Focus, August 2009</ref><ref>[http://www.telegraph.co.uk/finance/comment/jeffrandall/8436123/We-must-call-the-bluff-of-the-big-bad-banks.html We must call the bluff of the big banks], Jeff Randall</ref><ref name="Repudiating the National Debt"/><ref>[http://www.youtube.com/watch?v=1zMv4Offm_8&feature=player_embedded#at=1341 Max Keiser Interview with Alex Jones]</ref><ref>[http://www.buildfreedom.com/tl/rape3.shtml Economic Rape of America]</ref><ref>[http://www.youtube.com/watch?v=zbQq33iTsrw Rigged bank rates]</ref> Commentator Max Keiser has also referred to "zombie" bankers as "The Walking Dead"<ref>[http://www.youtube.com/watch?v=23_S5etzSP0 Resident Evil Zombie Banks!]</ref> and has coined the term "Suicide Banking" to describe the paradoxical situation where virtually every politician and economist acknowledges that "Too Big To Fail" is a dysfunctional policy but no one has a viable solution, given that the banking system is "rigged to blow" if threatened.<ref>[http://www.youtube.com/watch?v=PCRXz5oOQVY&feature=player_embedded Suicide Bankers], Max Keiser</ref> He also refers to the current crisis as a fight to the death not between countries or ethnic groups or political ideologies but between future-oriented, prudent and conservative "Savers" on one side and present-focused, imprudent and overconsuming "Speculators" on the other.<ref>[http://www.youtube.com/watch?v=jzzIqi2sbQY&feature=player_embedded US flashing Orange]</ref>

Many non-mainstream financial commentators believe the U.S. and the E.U. will soon experience terminal financial crises, but there is vigorous on-going debate amongst numerous commentators regarding whether this terminal currency crisis will end in hyperinflation and currency destruction (making government bonds worthless) or repeated bouts of deflation and depression (making government bonds more valuable).<ref name="Landis_Reprieve" /><ref>[http://www.marketoracle.co.uk/Article28148.html How to Keep a Damaged Financial and Economic System Afloat?], Bob Chapman</ref><ref>[http://news.goldseek.com/GoldSeek/1305306000.php Winning in the Hyperinflation/Deflation War], Deepcaster LLC</ref><ref>[http://www.marketoracle.co.uk/Article27733.html Compound Inflation], John Mauldin</ref><ref>[http://www.lewrockwell.com/north/north973.html Rick Ackerman Defects], Gary North</ref><ref>[http://globaleconomicanalysis.blogspot.com/2011/04/no-miracle-cures-from-inflation.html Impossible to Inflate Out of this Mess], MISH</ref><ref>[http://globaleconomicanalysis.blogspot.com/2009/06/big-inflationist-scare.html The Big Inflationist Scare], MISH</ref><ref>[http://globaleconomicanalysis.blogspot.com/2010/09/debating-flat-earth-society-about.html Debating the Flat Earth Society About Hyperinflation], MISH</ref><ref>[http://globaleconomicanalysis.blogspot.com/2009/01/peter-schiff-was-wrong.html Peter Schiff Was Wrong], MISH</ref><ref>[http://www.marketoracle.co.uk/Article27726.html Deflation Threat is Still Alive], EWI</ref><ref>[http://www.marketoracle.co.uk/Article27791.html Can We Give The Hyperinflation Thing a Rest?], Mike Whitney</ref> Most - but not all - Austrian commentators now believe the denouement will inevitably result in hyperinflation and render the U.S. dollar near-worthless in real terms, as U.S. bond and dollar holders compete to offload excess holdings in the face of massive ongoing issuance.<ref>[http://www.marketoracle.co.uk/Article29393.html US Dollar Supply and Demand], Jim Willie CB</ref><ref>[http://fofoa.blogspot.com/2011/04/deflation-or-hyperinflation.html Deflation or Hyperinflation?], FOFOA</ref><ref>[http://maxkeiser.com/2011/04/25/ding-ding-ding-its-all-over-rick-ackerman-concedes-hes-been-wrong-and-joins-the-hyperinflationist-camp/ It's all over! Rick Ackerman Concedes!], Max Keiser</ref> Mike Shedlock and Antal E. Fekete are amongst a small group of deflationists who believe contracting credit will continue to have a deflationary impact on the economy, causing government bonds to become even more valuable over time.<ref>[http://globaleconomicanalysis.blogspot.com/2011/05/hyperinflation-nonsense-in-multiple.html Hyperinflation Nonsense], MISH</ref><ref>[http://globaleconomicanalysis.blogspot.com/2011/04/no-miracle-cures-from-inflation.html No Miracle Cures from Inflation], MISH</ref><ref>[http://www.julianmidwinter.com.au/ The Federal Reserve as an engine of deflation], Antal E. Fekete</ref><ref>[http://globaleconomicanalysis.blogspot.com.au/2012/08/preposterous-falsehoods-from-gary-north.html Falsehoods from Gary North], MISH</ref>

It should be noted that few hyperinflationists can explain the ''precise mechanism'' by which massive amounts of new credit money will be injected into the economy. There has been no detailed explanation from the hyperinflationists regarding how, with so few potential credit-worthy borrowers (including governments), the new money (via the issuance of new debt) will be injected into the economy in sufficient volume to trigger hyperinflation in the absence of extreme government policies (such Congress authorizing every citizen to be issued with $30,000 vouchers, or a civil war, or other natural catastrophe).<ref>[http://globaleconomicanalysis.blogspot.com/2011/09/bernankes-waterloo-midst-of.html Bernanke's Waterloo], Mike Shedlock</ref>

Gary North is one of the few Austrians who does not predict the extremes of either hyperinflation or deflationary depression, but rather expects a continuation of steady, moderate price inflation encouraged and controlled by the Federal Reserve, against a background of ongoing extreme boom-busts in the real economy and the slow but systemic impoverishment of the middle class.<ref>[http://lewrockwell.com/north/north1031.html Mass Inflation, Yes; Hyperinflation, No], Gary North</ref>

Austrian commentator Robert K. Landis believes there will be a combined deflationary/inflationary catastrophe.<ref>[http://www.goldensextant.com/SavingtheSystem.html Saving The System], Robert K. Landis</ref>

Leaving aside the debate between deflationists and hyperinflationists, and in stark contrast to the predictions of deflationary or hyperinflationary catastrophe from the Austrians, monetarist, Keynesian and neo-classical economists regard the current financial system as benign and the current financial distress as temporary and not structural in nature.<ref>[http://www.marketoracle.co.uk/Article35922.html Who do You Trust?], James Quinn</ref> Most advocate "tweaking" of government policy (such as temporary increases in government spending) to get us out of the current crisis. No mainstream economist identifies the problem as fundamental or structural and no mainstream economist advocates a return to full reserve banking, the gold standard or free banking. Indeed, most financial analysts still use the normal distribution - or "Bell Curve" - to represent the likely distribution of future returns in financial markets.<ref>[http://seekingalpha.com/article/163271-rethinking-alpha-and-beta Rethinking Alpha and Beta], Paul Amery</ref> This continues despite extensive research demonstrating that the normal distribution does not apply to financial market returns, which display so-called "fat tail" distributions, with much more volatlity at the extremes than the normal distribution would predict.<ref>[http://www.bearcave.com/bookrev/misbehavior_of_markets.html The Misbehavior of Markets], Ian Kaplan</ref> The Austrian view - that the economy will either slide into depression or hyperinflation under the stresses of the current debt-based monetary monetary system - may be supported by more recent analysis of actual financial market behavior under conditions of high debt and extreme stress.<ref>[http://mises.org/daily/5352/What-Mises-Can-Teach-the-Quants What Mises Can Teach the Quants], Daniel James Sanchez</ref><ref>[http://lewrockwell.com/north/north990.html The Next Financial Crisis], Gary North</ref><ref>[http://www.debtdeflation.com/blogs/2011/06/11/dude-where%E2%80%99s-my-recovery/ Where's My Recovery?], Steve Keen</ref> And recently even mainstream economists, such as senior IMF advisor Dr Robert Shapiro, now openly acknowledge that the inter-dependencies created by the issuance of Credit Default Swaps and other risk-related financial products by reckless under-capitalized banks has created a situation of extreme global financial vulnerability, where the world is only weeks away from a complete and total financial "meltdown".<ref>[http://maxkeiser.com/2011/10/07/imf-advisor-says-we-face-a-worldwide-banking-meltdown/ IMF Advisor Says We Face a Worldwide Banking Meltdown], BBC. Quote, Dr Robert Shapiro: "If they (EU governments) cannot address this in a credible way, I believe that in perhaps two to three weeks we will have a meltdown in sovereign debt which will produce a meltdown across the European banking system - we're not just talking about a relatively small Belgian bank - we're talking about the largest banks in the world - the largest banks in Germany, the largest banks in France - that will spread. It will spread to the United Kingdom - in part through sovereign debt problems in Ireland - it will spread ''everywhere'' because the global financial system is so inter-connected they are each counter...''all'' those banks are counter-parties to every significant bank in the United States and in Britain and in Japan and around the world! This would be a crisis that would be, in my view, more serious than the crisis in 2008."</ref> John Butler of Amphora has observed that "business cycles" have become "financial cycles" with central bank manipulation of markets, and these cycles have become increasingly violent and unstable, with shorter durations and increasing frequency.<ref>[http://maxkeiser.com/2013/05/16/kr445-keiser-report-sacred-dow/ Sacred Dow]</ref> To him, this signals the dying stages of a failed system, much like a spinning top slowing down and oscillating more frequently and more violently from side to side before coming to a sudden stop. According to John Butler, increases in stock prices are not a sign the economy is recovering, but is a sign of central bank-induced inflation - the first stages of currency collapse.<ref>[http://maxkeiser.com/2013/05/16/kr445-keiser-report-sacred-dow/ Sacred Dow]</ref>

Regardless whether the government chooses hyperinflation or periodic deflationary depression as the way out, throughout history, only two real alternatives occur in the midst of economic or financial crisis: ever greater centralization (often on a "higher level") or disintegration of the core power structures and (eventually) rejuvenation.<ref>[http://www.telegraph.co.uk/comment/columnists/janetdaley/8770696/The-European-dream-lies-in-ruins.html The European dream lies in ruins], Janet Daley, UK Telegraph</ref><ref>[http://www.zerohedge.com/article/greeces-ultimatum-bailout-bankers-or-loss-sovereignty Greece's Ultimatum], ZeroHedge</ref><ref>[http://www.lewrockwell.com/north/north966.html Wealth Through Decentralization], Gary North</ref><ref>[http://mises.org/store/Rollback-P10449.aspx ''Rollback''], Thomas Woods</ref><ref>[http://blog.mises.org/9321/crisis-and-leviathan/ Crisis and Leviathan], Robert Higgs</ref><ref>[http://mises.org/store/Money-Bank-Credit-and-Economic-Cycles-P290C0.aspx Money, Bank Credit and Economic Cycles], Jesus Huerta de Soto, Mises Institute ISBN: 978-1-933550-39-8</ref><ref>[http://mises.org/store/Meltdown-P557.aspx ''Meltdown''], Tom Woods, Regnery Press ISBN: 9781596985872</ref><ref>[http://mises.org/media/4014 The Economics of Legal Tender Laws], [[Jorg Guido Hulsmann]] (includes detailed commentary on centralization during crises)</ref><ref>[http://www.amazon.com/Warwolves-Iron-Cross-International-Relationships/dp/146358380X/ref=sr_1_33?ie=UTF8&qid=1316347713&sr=8-33 Warwolves of the Iron Cross], Veronica Kuzniar Clark</ref> Accordingly, many of the more extreme monetary reformers and [[conspiracy theorists]] anticipate repeated and ever more desperate attempts at ''higher-order centralization'',<ref>[http://www.telegraph.co.uk/comment/columnists/janetdaley/8770696/The-European-dream-lies-in-ruins.html The European dream lies in ruins], Janet Daley, UK Telegraph</ref><ref>[http://www.marketoracle.co.uk/Article27051.html A New World Currency?], Ellen Hodgson Brown</ref> as the existing co-ordinated state-based central bank architecture becomes discredited through repeated economic failure and environmental crises caused by the need for unsustainable exponential debt-driven economic "growth" within the current debt-based financial architecture.<ref>[http://www.zerohedge.com/article/guest-post-economic-abyss The Economic Abyss], Brandon Smith</ref> This centralization is anticipated to include the empowerment of the UN to increasingly intervene in the domestic political affairs of nations,<ref>[http://www.lewrockwell.com/rozeff/rozeff343.html World Government], Mike Rozeff</ref> the IMF and EU to increasingly intervene in the domestic financial affairs of member nations,<ref>[http://www.telegraph.co.uk/comment/columnists/janetdaley/8770696/The-European-dream-lies-in-ruins.html The European dream lies in ruins], Janet Daley, UK Telegraph</ref><ref>[http://www.zerohedge.com/article/greeces-ultimatum-bailout-bankers-or-loss-sovereignty Greece's Ultimatum], ZeroHedge</ref><ref>[http://globaleconomicanalysis.blogspot.com/2010/11/terms-of-enslavement-irish-citizens-say.html Terms of Enslavement], MISH</ref><ref>[http://globaleconomicanalysis.blogspot.com/2010/11/imf-ready-to-help-ireland-can-imf-help.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+MishsGlobalEconomicTrendAnalysis+%28Mish%27s+Global+Economic+Trend+Analysis%29 Can the IMF help anyone?], MISH</ref><ref>[http://www.telegraph.co.uk/finance/financialcrisis/8150137/Ireland-forced-to-take-EU-and-IMF-bail-out-package.html Ireland forced to take IMF bailout package], Telegraph</ref> and the declaration of [[martial law]] and the imposition of [[fascist]]-style restrictions on [[civil rights]]<ref>[http://www.zerohedge.com/article/guest-post-us-monetary-system-and-descent-fascism-interview-dr-edwin-vieira The U.S. Monetary System and Descent Into Fascism], Dr Edwin Vieir</ref><ref>[http://english.aljazeera.net/indepth/opinion/2011/04/201142612714539672.html Global capitalism and 21st cenury fascism], William I. Robinson</ref><ref>[http://www.lewrockwell.com/rep2/jesse-ventura-on-tsa-abusers.html Jesse Ventura on the TSA' Sexual Abusers]</ref> and [[freedom of speech]] by the political [[The Establishment|Establishment]] to physically protect it from [[anarchy]] or military [[coup]] when the [[bubble (economics)|bubble]] of debt completely bursts, through a precipitous currency crisis, debt-created [[Depression (economics)|depression]], environmental crisis or oil shortage.<ref>[http://www.marketoracle.co.uk/Article26605.html Population Reduction], Chris Kitze</ref><ref>[http://jsmineset.com/2011/02/24/in-the-news-today-791/ Collapse]</ref><ref>[http://www.lewrockwell.com/lewrockwell-show/2010/12/14/179-the-espionage-act-and-the-death-of-american-freedoms/ Death of American Freedoms], Naomi Wolf, LRC interview, Dec 14, 2010</ref><ref>[http://www.house.gov/paul/congrec/congrec2007/cr120507h.htm New security legislation threats freedoms]</ref><ref>[http://www.marketoracle.co.uk/Article26325.html Bank Credit Ends in Catastrophe], Richard Daughty, The Mogambo Guru</ref> Ultimately this is anticipated to yield either repressive world government<ref>[http://www.zerohedge.com/news/2013-01-31/guest-post-linchpin-lie-how-global-collapse-will-be-sold-masses The Linchpin Lie]</ref> or chaos (or most likely both), with a world central bank stationed in Basel, Switzerland.<ref>[http://www.zerohedge.com/news/2013-05-03/monarchs-money Monarchs of Money]</ref><ref>[http://www.youtube.com/watch?v=VMngK0t5WkY Max Keiser]</ref><ref>[http://www.marketoracle.co.uk/Article28533.html The Global Debt Crisis], Ellen Hodgson Brown</ref><ref>[http://www.marketoracle.co.uk/Article27051.html A New World Currency?], Ellen Hodgson Brown</ref><ref>[http://www.marketoracle.co.uk/Article27554.html Libya War All About Oil or Gold and Banking?], Ellen Hodgson Brown</ref><ref>[http://blog.mises.org/9321/crisis-and-leviathan/ Crisis and Leviathan], Robert Higgs</ref> During this transition period, some analysts and conspiracy theorists anticipate multiple wars to force governments into the BIS financial "net",<ref>[http://www.youtube.com/watch?v=VMngK0t5WkY Max Keiser]</ref><ref>[http://www.marketoracle.co.uk/Article28533.html The Global Debt Crisis], Ellen Hodgson Brown</ref><ref>[http://www.marketoracle.co.uk/Article27051.html A New World Currency?], Ellen Hodgson Brown</ref><ref>[http://www.marketoracle.co.uk/Article27554.html Libya Ware All About Oil or Gold and Banking?], Ellen Hodgson Brown</ref> impotent and counterproductive price controls,<ref>[http://globaleconomicanalysis.blogspot.com/2011/03/food-prices-rise-11-in-china-overall.html Chinese inflation], MISH</ref><ref>[http://www.lewrockwell.com/goyette/goyette18.1.html Too Late!], Charles Goyette</ref> repeated sell-offs of monopoly state assets in a desperate attempt to feed private domestic banks with steady, coercively acquired income to keep the value of government bonds collapsing,<ref>[http://globaleconomicanalysis.blogspot.com/2011/05/whos-bigger-socialist-president-obama.html Who's the Bigger Socialist?], MISH</ref> and then, once this attempt (to feed unsustainable compounding debt with any remaining basic infrastructure) destroys any remaining parts of the productive economy, there will be in the end coercively enforced rationing of basic essentials to ensure continued supply of food and oil to senior government officials, bankers and their associates amidst widespread general starvation and chaos,<ref>[http://www.technologyreview.com/blog/arxiv/27083/?p1=blogs Food prices and Riots]</ref><ref>[http://www.marketoracle.co.uk/Article26605.html Population Reduction], Chris Kitze</ref> as the coalescence of a corrupt banker-government coalition solidifies<ref>[http://www.zerohedge.com/news/2013-01-31/guest-post-linchpin-lie-how-global-collapse-will-be-sold-masses The Linchpin Lie]</ref><ref>[http://maxkeiser.com/2011/04/28/kr142-keiser-report-blind-cult-of-america/ Blind Cult of America]. Quote: Max Keiser: "Yes, it's beyond religious fervor. That's the point. It's become this echo chamber, cult-like 'America can't fail' which is very endemic when you see suicide cults. Remember Jim Jones. Remember him. The Kool Aid. He made the idea of drinking Kool Aid... he popularized that notion. Everyone committed suicide in Guyana. Or the Hail-Bot Comet Cult. Here you've got 300 million Americans who are worshiping this idea of 'American-style' Free Market Capitalism that doesn't exist. They support market manipulation on Wall Street and they're all gonna ''die'' as a result. Now that's less than 5% of the world's population. It is 25% of the world's garbage so the world will breathe a sigh of relief, but, as far as those living inside they don't really understand that they're being used as cult fodder." Stacy Herbert: "The equivalent of drinking the cyanide-laced Kool Aid would be purchasing a McMansion with a sub-prime mortgage. This is them committing suicide. It's the equivalent of drinking cyanide-laced Kool Aid." Max Keiser: "It's financial suicide. As we've talked about. Financialization of the economy has turned into this hybrid reality that combines political malfeasance with financial larceny and that's the combination between Obama's White House and Wall Street merging together into something even more insidious than fascism. It's a Klepto-F*@kingSh*tism. It's a... it's a Klepto-Sh*tism is the current political-financial school of thought in America today and it's not working. It's unsustainable."</ref> to eliminate potential dissent and ensure the forced elimination - by any means necessary - of any actual or potential competing [[currencies]] that could threaten the viability or legitimacy of the [[monopoly]] currency, which could include war against any country considering using any currency other than US dollars to price essential commodities such as oil <ref>[http://www.lewrockwell.com/holland/holland44.1.html Anglo-American Deception], Ron Holland</ref> and the compulsory confiscation of all privately-owned [[gold]] (gold being the ultimate reserve currency, still used by central banks as a universally accepted medium of exchange for the settlement of international debts).<ref>[http://mises.org/daily/5184/The-Crime-of-Private-Money The "Crime" of Private Money], Robert Murphy</ref><ref>[http://www.zerohedge.com/article/guest-post-thoughts-liberty-dollar-debacle Liberty Dollar], ZeroHedge.com</ref><ref>[http://blog.mises.org/14795/the-gold-clause-cases-and-constitutional-necessity/ Gold Clause Cases]</ref><ref>[http://news.goldseek.com/GoldSeek/1196605589.php America's Trade Debts Lead to a Likely Gold Confiscation]</ref><ref>[http://www.libertydollar.org/ld/legal/raid.htm FBI Raids Liberty Dollar]</ref><ref>[http://www.lewrockwell.com/rothbard/solution.html The Solution]</ref><ref>[http://prudentinvestor.blogspot.com/2007/09/us-mint-suspends-gold-coin-sales-due-to.html US Mint Suspends Gold Coin Sales]</ref><ref>[http://www.swissamerica.com/article.php?art=06-2004/200406140537f.txt Why a Gold Standard Now?]</ref><ref>[http://www.lewrockwell.com/blog/lewrw/archives/73468.html Bank of America an arm of US government policy]</ref><ref>[http://www.marketoracle.co.uk/Article26325.html Bank Credit Ends in Catastrophe], Richard Daughty, The Mogambo Guru</ref><ref>[http://www.sovereignman.com/expat/bernanke-terrorist Bernanke is the domestic terrorist], Sovereign Man</ref><ref>[http://www.marketoracle.co.uk/Article28225.html DSK Was Trying to Torpedo the Dollar], Mike Whitney</ref>

Some have speculated that the overthrow and attempted assassination of Col. Gaddafi and his family in 2011 Libyan "civil war" was triggered by Col. Gaddafi's open (and unwise) attempt to price Libya's oil in gold, which is the reaction many would expect for a country that "dared" to price an essential commodity in anything other than a Western paper currency.<ref>[http://www.youtube.com/watch?v=GuqZfaj34nc&feature=player_embedded#! Gaddafi: Gold for Oil?], RTTV</ref><ref>[http://www.youtube.com/watch?v=8lnslMWhOTw&list=SPC3F29DDAA1BABFCF&index=194 Welcome Home German Gold], Max Keiser</ref>

There have been many [[financial crisis|monetary crises]] throughout history.<ref>[http://www.zerohedge.com/news/2013-02-26/trust-me-time-different Trust Me This Time Is Different]</ref><ref>[http://www.delanion.com/main/dom.htm Fiat Money Inflation in France], Gold Money video featuring Max Keiser, James Turk and Pierre Jovanovic</ref><ref>[http://www.delanion.com/main/dom.htm Dying of Money], Jens O. Parsson</ref><ref>[http://www.delanion.com/main/dom.htm Dying of Money], Jens O. Parsson</ref><ref name="Bonner_Swan">[http://www.lewrockwell.com/bonner/bonner454.html Revolution in Egypt and Black Swans], Bill Bonner, February 15, 2011.</ref><ref>[http://news.goldseek.com/GoldSeek/1297199137.php China Inflation and Gold], Darryl Robert Schoon</ref><ref>[http://mises.org/store/Early-Speculative-Bubbles-P578.aspx Early Speculative Bubbles and Increases in the Money Supply], Doug French, Mises Institute ISBN: 978-1-933550-44-2</ref><ref>[http://dailyreckoning.com/a-word-of-advice-to-financial-authorities/ Advice to Financial Authorities], Bill Bonner</ref><ref>[http://www.marketoracle.co.uk/Article26325.html Bank Credit Ends in Catastrophe], Richard Daughty, The Mogambo Guru</ref> Some commentators have noted that our present system and the strategies attempted by governments to reflate the economy closely resemble the failed theories of John Law and the Mississippi bubble of the early 18th century.<ref>[http://www.economist.com/node/14215012 Law of easy money], ''The Economist''</ref> There are a number of standard warning signs of impending depression or hyperinflation caused by a complete breakdown of trust in any [[monetary system]].<ref>[http://mises.org/store/Product.aspx?ProductId=435 Fiat Money Inflation in France], Andrew Dickson White, Mises Institute</ref><ref>[http://www.marketoracle.co.uk/Article25313.html Asset Speculation and Capital Destruction], Jim Willie</ref><ref>[http://www.zerohedge.com/article/guest-post-economic-abyss The Economic Abyss], Brandon Smith</ref><ref>[http://lewrockwell.com/orig12/martenson8.1.1.html Argentina: A Case Study], Chris Martenson and FerFAL</ref> Just prior to the complete collapse of the [[pyramid scheme]] of public and private debt, the economic system tends to feed on itself, and in the past, where debt-created [[Depression (economics)|depression]]s or periods of [[hyperinflation]] have occurred in [[Europe]],<ref name="Bonner_Swan" /> the [[U.S.]] and [[China]], there has been a sustained spike in predatory economic behavior, as the heavily indebted central government and producers are forced to find more extreme (previously considered unethical) methods to extract any remaining wealth from increasingly desperate and impoverished [[consumers]], who are either unwilling or unable to go into further debt without forceful coercion.<ref>[http://www.zerohedge.com/article/guest-post-ethics-mortgage-loan-default The Ethics of Mortgage Loan Default], Greg Lemelson</ref><ref name="Bonner_Swan" /><ref name="http">{{cite book |last= Widdig |first= Bernd |title= Culture and Inflation in Weimar Germany |url= http://books.google.com/books/ucpress?id=kvKAATycUzIC |accessdate= 2007-12-16 |year= 2001 |publisher= University of California
Press |isbn= 0520222903 }}</ref><ref>[http://mises.org/daily/3569 John Law and the Invention of Modern Finance], Doug French (Mises.org)</ref><ref>[http://mises.org/daily/1690 The Saga of John Law and Richard Cantillon], Sean Corrigan (Mises.org)</ref> [[Long-term]] investment and sustained [[capital investment]] are almost impossible in this environment because the "measuring stick" of [[return on investment]] (the real value of [[money]]) is so uncertain at times of debt-induced [[credit crunch]], depression or hyperinflation.<ref>[http://www.marketoracle.co.uk/Article25313.html Asset Speculation and Capital Destruction], Jim Willie</ref>

As potential new [[borrower]]s and international financiers are scared away from participating in the [[pyramid scheme]] of debt and borrowing further, the [[monetary system]] seizes up, starved of the fresh injections of [[debt money]] it needs for its survival, thereby precipitating economic [[anarchy]],<ref name="Bonner_Swan" /><ref>[http://www.zerohedge.com/article/guest-post-economic-abyss The Economic Abyss], Brandon Smith</ref> widespread [[lawlessness]]<ref name="Bonner_Swan" /> and [[insolvency]] of the monetary and banking system.<ref>[http://www.youtube.com/watch?v=FPxYg6mgGpE Inflation is There], Peter Schiff</ref><ref>[http://www.oftwominds.com/blognov07/empire-debt1.html Empire of Debt]</ref><ref name="Landis_Reprieve" /><ref>[http://www.marketoracle.co.uk/Article25313.html Asset Speculation and Capital Destruction], Jim Willie</ref><ref name="Bonner_Swan" /> Some have described the moment when governments cannot borrow any more from banks to keep up the growth in debt money as the "Keynesian Endpoint" or "Keynesian Endgame" or point of "Debt Saturation" - which is the point in time when ''in extremis ''"emergency" measures by the government to kick-start the economy by increasing total gross debt have no lasting positive effect on GDP.<ref>[http://www.zerohedge.com/article/guest-post-economic-death-spiral-has-been-triggered The Economic Death Spiral], Gordon T. Long</ref><ref>[http://www.zerohedge.com/article/charting-ten-year-prelude-keynesian-endgame Keynesian Endgame], ZeroHedge</ref><ref>[http://en.wikipedia.org/wiki/Keynesian_endpoint Keynesian Endpoint], Wikipedia definition</ref><ref>[http://www.marketoracle.co.uk/Article27801.html U.S. Debt Saturation and Money Illusion], Gordon T. Long</ref> Antal E. Fekete identifies this "crisis" point as the point when the marginal increase in total gross debt has no positive marginal effect on GDP.<ref>[http://www.professorfekete.com/articles/AEFGotterdammerung.pdf Gotterdammerung], Antal E. Fekete</ref> According to Professor Fekete, once the marginal productivity of debt turns negative, a disastrous depression is inevitable.<ref>[http://www.professorfekete.com/articles/AEFGotterdammerung.pdf Gotterdammerung], Antal E. Fekete</ref>

Recent studies have indicated that debt turns toxic at between 80 and 100 percent of GDP. Beyond this, further increases in debt reduce GDP rather than stimulate it.<ref>[http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100011744/when-debt-levels-turn-cancerous/ When Debt Levels Turn Cancerous], Ambrose Evans-Pritchard</ref>

This final denouement is triggered when [[borrower]]s cannot be found to buy depreciating, already-indebted, assets, and international financiers reduce lending as they experience losses on pre-existing loans either through asset or currency [[depreciation]].<ref>[http://www.youtube.com/watch?v=FPxYg6mgGpE Inflation is There], Peter Schiff</ref> Some analysts predict that the [[monetary system]] will seize up due to a [[deflationary]] depression<ref>[http://www.zerohedge.com/article/guest-post-heres-setup-con-decade The Con of the Decade], ZeroHedge</ref> or a sustained period of [[stagflation]]ary hyperinflation resulting in a "final and total catastrophe of our fiat monetary system."<ref name="Landis_Reprieve" /><ref>[http://www.marketoracle.co.uk/Article25313.html Asset Speculation and Capital Destruction], Jim Willie</ref><ref>[http://www.youtube.com/watch?v=FPxYg6mgGpE Inflation is There], Peter Schiff</ref><ref>[http://www.marketoracle.co.uk/Article27402.html Deflationists Blind to Inflationary Storm], Jim Willie</ref><ref>[http://www.marketoracle.co.uk/Article27466.html Compounding Debt]</ref>

Examples of debt and monetary crises can often be found after failed wars, when international financiers realize the heavily indebted [[government]] they funded will not gain the resources it planned to seize as a result of the waging of aggressive war. When this pay-off does not materialize, the losing government is left with the debt of war without the ability to offset this government debt through the imposition of reparations on the defeated nation and the acquisition of the defeated state's resources, thereby boosting the victorious state's GDP and tax revenues. This sudden monetary collapse occurred to [[Germany]] after the [[First World War]] and [[Japan]] after the [[Second World War]].

Whatever the trigger, the key warning sign of any impending monetary crisis and economic [[anarchy]] is a sudden [[currency crisis]], or a sudden spike in domestic interest rates, or a sudden [[credit crunch]] or the announcement of a bank holiday.<ref>[http://mises.org/daily/6400/Lessons-from-Cyprus Lessons from Cyprus]</ref><ref name="Landis_Reprieve" /> Early warning signs that the [[private banks]] themselves are aware of an impending breakdown in the [[solvency]] of the [[financial system]] would be any combination of some or all the following: a spike in the [[oil]] price (which is an internationally accepted, inherently limited, store of value, and therefore can act as a modern form of [[hard currency]], oil sometimes being referred to as "black gold"), "backwardation" in [[gold]],<ref>[http://www.zerohedge.com/news/2013-02-22/gold-and-potential-dollar-endgame-part-3-backwardation-and-gold Gold and the Potential Dollar Endgame]</ref><ref>[http://www.minyanville.com/businessmarkets/articles/gold-spot-price-gold-prices-gold/5/10/2011/id/34441?camp=syndication&medium=portals&from=yahoo Permanent Gold Backwardation: Why a "Crack Up Boom" Is Inevitable], Keith Weiner</ref> and [[silver]]<ref>[http://www.youtube.com/watch?v=021yEhjPDa0&feature=player_embedded#at=826 $400 Ounce Silver, $8000 Ounce Gold], James Turk</ref><ref>[http://www.youtube.com/watch?v=FPxYg6mgGpE Inflation is There], Peter Schiff</ref> and sudden price spikes in other stable, non-perishable, inherently limited [[natural resources]] essential for non-discretionary industrial production;<ref>[http://www.marketoracle.co.uk/Article25313.html Asset Speculation and Capital Destruction], Jim Willie</ref> a spike in the [[futures contract]]s for vital agricultural [[commodities]]<ref>[http://www.marketwatch.com/story/fed-dictator-bernanke-needs-to-be-toppled-2011-02-15 Fed dictator Bernanke needs to be toppled], Paul B. Farrell</ref><ref>January 27, 2011 – ''Financial Times'' (Javier Blas and Chris Giles): “Governments across the developing world are stockpiling food staples in an attempt to contain panic buying, inflation and social unrest. But the hoarding is driving agricultural commodity prices even higher. The cost of wheat, the world’s most important staple, reached a fresh two-and-a-half-year high on Thursday, after countries from Algeria to Saudi Arabia announced extraordinary purchases. High food prices have been a contributing factor to the recent wave of social unrest across North Africa and the Middle East. In Algeria earlier this month, young rioters chanted ‘Bring us sugar!’ The cost of the sweetener in the wholesale market is at its highest in 30 years. Earlier this week, Algeria bought 800,000 tonnes of wheat – much more than usual – and Saudi Arabia announced plans to double the size of its wheat stockpile. Bangladesh and Indonesia joined the rush on Thursday, placing extraordinary on rice orders.”</ref> such as [[sugar]],<ref>[http://www.bloomberg.com/news/2010-12-15/portugal-tries-to-prevent-sugar-hoarding-amid-shortage-ft-says.html 2010 Portugal Sugar Crisis]</ref> [[corn]], [[wheat]], [[soybean]]s and [[rice]], as investors realize the debt-based monetary system has squeezed supplies of [[arable land]];<ref>[http://webofdebt.wordpress.com/2011/02/03/the-egyptian-tinderbox-how-banks-and-investors-are-starving-the-third-world/#more-1052 Banks and investors are starving the Third World], Ellen Hodgson Brown</ref><ref>[http://www.preparednesspro.com/blog/food-shortage-series-part-1/ Food Shortage Series],Kellene Bishop</ref><ref>[http://www.smh.com.au/environment/world-hungers-for-more-food-20110402-1csbh.html World hungers for more food], Sydney Morning Herald,</ref> a sudden flight of money ''to'' [[Treasury bills]] and/or a sudden spike in the [[interest rate]] differential between short-term [[Treasury bills]] and asset-backed corporate paper (or a sudden spike in the [[LIBOR]] rate in [[London]])<ref name="Landis_Reprieve" /><ref>[http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/12/03/cnrates103.xml&CMP=ILC-mostviewedbox Pleas for rate cut as interbank loans dive]</ref> - and then, in the very late stages of a credit crisis, a sudden and disorderly flight of money ''away from'' government bonds and a "shock" or "panic" collapse in government bond prices, as banks perceive that some governments will ultimately find it ''impossible'' to pay interest on their debt from coercively acquired taxes.<ref>[http://www.youtube.com/watch?v=SgNLTb58K_Y S&P Rating on US Sovereign Debt not Low Enough], Peter Schiff</ref><ref>[http://www.telegraph.co.uk/finance/economics/8190059/Global-bond-rout-deepens-on-US-fiscal-worries.html Global bond rout], Ambrose Evans-Pritchard, UK Telegraph</ref><ref>[http://www.prudentbear.com/index.php/thebearslairview?art_id=10480 When Will The U.S. Become Greece?], Michael Hutchinson</ref>

Shortly thereafter, some [[monetary reform]]ers predict that there would be desperate, but ultimately futile [[central bank]] intervention involving massive, repeated bouts of "quantitative easing",<ref>[http://www.zerohedge.com/article/did-fed-its-stealthy-synthetic-bet-keep-yields-low-become-next-aig Doubling Down], ZeroHedge</ref> then a [[currency crisis]],<ref>[http://www.zerohedge.com/article/jim-grant-inflation-there-will-be-lot-it-suddenly-because-our-interest-rate-structure-beyond Jim Grant on Inflation], ZeroHedge</ref> then a panic run on a number of marginal, [[insolvent]] [[banks]] and [[hedge funds]] as desperate wealthy investors try to get [[cash]] out before the [[pyramid scheme]]<ref>[http://www.youtube.com/watch?v=FPxYg6mgGpE Inflation is There], Peter Schiff</ref> collapses to invest in inherently limited, non-perishable, in-demand commodities such as [[oil]] and [[gold]]<ref>[http://www.professorfekete.com/articles/AEFAmericanBasesGermanyGoldBasis.pdf The Gold Basis], Antal E Fekete]</ref><ref>[http://www.zerohedge.com/article/golden-tipping-point-university-texas-takes-delivery-1-billion-physical-gold A Golden Tipping Point], ZeroHedge</ref><ref>[http://www.youtube.com/watch?v=FPxYg6mgGpE Inflation is There], Peter Schiff</ref><ref>[http://www.marketoracle.co.uk/Article25313.html Asset Speculation and Capital Destruction], Jim Willie</ref> (and undeveloped agricultural and industrial [[land]] in areas of the world with strong [[economic growth]]),<ref>[http://www.nytimes.com/2011/03/04/business/04farms.html?_r=1&hp Price of Farmland] NYTimes</ref> followed by a [[recession]] or [[depression]] in the broader heavily indebted economy as [[money supply|credit]] contracts but base money continues to rise exponentially.<ref>[http://www.marketoracle.co.uk/Article27172.html Why QE has NOT brought back inflation], EWI</ref><ref name="Landis_Reprieve" /><ref>[http://www.marketoracle.co.uk/Article25313.html Asset Speculation and Capital Destruction], Jim Willie</ref><ref>[http://www.newyorkfed.org/research/staff_reports/sr291.pdf Hedge Funds, Financial Intermediation and Systemic Risk]</ref><ref>[http://jsmineset.com/2011/02/24/in-the-news-today-791/ Collapse]</ref><ref>[http://www.marketoracle.co.uk/Article27596.html US Accelerating Inflation Mega-Trend], Nadeem Walayat</ref>

Historically, during periods of monetary disorder, a predator-prey mentality generally grips society, with parasitic or predatory activity being witnessed, eating away at the last vestiges of the middle class.<ref>[http://www.goldonomic.com/When%20Money%20Dies.pdf When Money Dies], Adam Fergusson</ref> In such circumstances the following activities continue to be profitable and proliferate during monetary disorder: international banking and financial services to the wealthy elite, to assist in secreting their assets outside the jurisdiction; drug trafficking and distribution to ease the psychological stress on those slipping down the social ladder into poverty and homelessness; security and protection services to the wealthy; entertainment services to the wealthy, including gambling, prostitution (male, female and child) and "exclusive" nightclubs and bars servicing the wealthy; luxury imported goods and services; military and defense contracting and procurement (as a form of high-level security services for elite government employees), propaganda and media services defending and glorifying and legitimizing the State; and all forms of coercive government activity generally (as the tendency towards fascist-style controls feeds on itself in a positive feedback loop around a triangle of increasing government employee numbers scared away from the shrinking private sector, a banking industry supporting government jobs and big business and defense contracting supporting and feeding both).<ref>[http://www.zerohedge.com/news/2013-05-22/greek-prostitution-soars-150-youth-unempoyment-hits-75-some-areas Greek Prostitution Soars By 150%]</ref><ref>[http://www.goldonomic.com/When%20Money%20Dies.pdf When Money Dies], Adam Fergusson</ref><ref>[http://books.google.com.au/books?id=kvKAATycUzIC&pg=PA197&lpg=PA197&dq=prostitution+modernism+weimar+germany+hyperinflation&source=bl&ots=DaJiHnllDu&sig=Acfme5660DBUC6Xw5XLdoke5IE4&hl=en&ei=fOB1Tor1BsXRmAWSoYn0DA&sa=X&oi=book_result&ct=result&resnum=5&ved=0CD4Q6AEwBDgK#v=onepage&q&f=false Culture and Inflation in Weimar Germany], Bernd Widdig</ref><ref>[http://www.businessinsider.com/finance-guy-in-london-explains-how-to-order-cocaine-from-a-restaurant-2011-9#ixzz1Y2MQUyzJ London Banker explains how to order cocaine from London restaurant]</ref><ref>[http://www.alternet.org/story/152446/inside_the_trillion-dollar_underground_economy_keeping_many_americans_%28barely%29_afloat_in_desperate_times?page=entire Inside the Underground Economy]</ref>

It should be noted that in 2011 banks started paying police directly, presumably to ensure protection from the public should widespread protests commence against their alleged [[embezzlement]] activities.<ref>[http://lewrockwell.com/wenzel/wenzel132.html Banksters Running Scared]</ref>

In 2010 Ireland and Greece experienced similar financial crises along the lines described above and many financial commentators and politicians expect more countries to go through the same debt crisis.<ref>[http://globaleconomicanalysis.blogspot.com/2010/12/video-fire-bombs-stones-fly-in-greek.html Greek protests]</ref><ref>[http://www.youtube.com/watch?v=2gm9q8uabTs "Who the Hell do you think you people are?"], Nigel Farage, UKIP leader</ref><ref>[http://www.marketoracle.co.uk/Article25313.html Asset Speculation and Capital Destruction], Jim Willie</ref> In 2011, Tunisia experienced a financial and political crisis that was almost identical to those already experienced on the poorer European periphery, except that in this case the pre-existing political establishment quickly fled the country in fear for their safety - with some allegations that the wife of the deposed leader, Leila Trabelsi, ordered the country's central bank to transfer 1.5 tonnes of [[gold]] to Zine El Abidine Ben Ali and his family.<ref>[http://www.marketoracle.co.uk/Article25636.html We are all Tunisians], Yvonne Ridley</ref><ref>[http://www.heraldsun.com.au/news/breaking-news/tunisia-missing-15-tonnes-of-gold/story-e6frf7jx-1225992107457 Tunisia missing 1.5 tonnes of gold], Herald Sun</ref> The Egyptian uprising resulted in Hosni Mubarek fleeing after desperate attempts were made by him and his associates to preserve his family's wealth and power.<ref>[http://news.yahoo.com/s/ap/20110212/ap_on_re_mi_ea/ml_egypt_mubarak_s_final_hours Mubarak's final hours], Associated Press</ref> Several newspapers have reported that, once again, appropriating the nation's gold reserves was a major priority for the fallen leader.<ref>[http://www.smh.com.au/world/mubaraks-lastminute-rush-to-hide-his-billions-20110213-1as1c.html Mubarak's Rush to Hide Billions], SMH</ref> Following the overthrow of the ruling elites in Tunisia and Egypt, other North African countries have experienced similar uprisings - all attributable to higher food prices, according to some noted commentators,<ref>[http://www.telegraph.co.uk/finance/economics/8492078/How-the-Fed-triggered-the-Arab-Spring-uprisings-in-two-easy-graphs.html How the Fed triggered the Arab Spring uprisings], Andrew Lilico</ref> who have accused Fed Chairman Ben Bernanke of literally having "blood on his hands" due to the encouragement of food price inflation via sustained inflationary loose-monetary policies.<ref>[http://globaleconomicanalysis.blogspot.com/2011/01/blood-on-bernankes-hands-riots-in-egypt.html Blood on Bernanke's Hands], MISH</ref><ref>[http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2011/4/6_Marc_Faber_-_Mr._Bernanke_is_a_Murderer_of_the_Middle_Class.html Marc Faber calls Mr Bernanke a Murderer of the Middle Class], King World News</ref><ref>[http://www.youtube.com/watch?v=V3NdUU1wWa4&feature=player_embedded#at=89 Max Keiser - Bernanke is a Murderer]</ref><ref>[http://dailyreckoning.com/lessons-from-egypt-for-the-american-people/ Lessons from Egypt], Charles Kadlec</ref><ref>[http://www.marketwatch.com/story/fed-dictator-bernanke-needs-to-be-toppled-2011-02-15 Fed dictator Bernanke needs to be toppled], Paul B. Farrell</ref><ref>[http://mises.org/daily/5050/QE2-Fuels-a-Global-Fury QE2 Fuels a Global Fury], Mark Thornton</ref><ref>[http://www.zerohedge.com/article/bernanke-blame-rising-global-revolutionary-wave?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+zerohedge%2Ffeed+%28zero+hedge+-+on+a+long+enough+timeline%2C+the+survival+rate+for+everyone+drops+to+zero%29 Is Bernanke To Blame?], Tyler Durden, ZeroHedge</ref> The central banker has denied that his inflationary loose-monetary policies have contributed to food inflation and Chicago Fed President Charles Evans has called for ''even more'' quantitative easing and inflation as a way out of the on-going crisis, despite previous attempts having failed to stimulate the economy.<ref>[http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/8302111/Fed-chief-Ben-Bernanke-denies-US-policy-behind-record-global-food-prices.html Ben Bernanke Denies US Policy Behind Food Price Inflation], UK Telegraph, 3 February 2011</ref><ref>[http://www.zerohedge.com/news/evans-goes-full-qetard-tells-hilsenrath-fed-needs-do-much-more-easing Chuckie Evans Goes Full QEtard]</ref> Implicit in Mr Bernanke's and Mr Evan's argument is the assumption that the central bank can create "good" inflation in some markets and avoid "bad" inflation in others. This alleged central bank power to direct good inflation and abate bad inflation is derided by a number of commentators.<ref>[http://www.youtube.com/watch?v=V3NdUU1wWa4&feature=player_embedded#at=89 Max Keiser - Bernanke is a Murderer]</ref><ref>[http://globaleconomicanalysis.blogspot.com/2011/01/blood-on-bernankes-hands-riots-in-egypt.html Blood on Bernanke's Hands], MISH</ref><ref>[http://dailyreckoning.com/lessons-from-egypt-for-the-american-people/ Lessons from Egypt], Charles Kadlec</ref><ref>[http://www.marketwatch.com/story/fed-dictator-bernanke-needs-to-be-toppled-2011-02-15 Fed dictator Bernanke needs to be toppled], Paul B. Farrell</ref><ref>[http://www.zerohedge.com/article/bernanke-blame-rising-global-revolutionary-wave?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+zerohedge%2Ffeed+%28zero+hedge+-+on+a+long+enough+timeline%2C+the+survival+rate+for+everyone+drops+to+zero%29 Is Bernanke To Blame?], Tyler Durden, ZeroHedge</ref><ref>[http://www.marketoracle.co.uk/Article28587.html QE2 Unmitigated Failure], James Quinn</ref><ref>[http://www.marketoracle.co.uk/Article28998.html The Great Misdiagnosis], Jim Willie CB</ref>

Noted British ''Telegraph'' commentator Ambrose Evans-Pritchard has called these the first Malthusian "Food Revolutions" of the modern era, as "agflation" causes political instability on the periphery of major economies worldwide - particularly those countries that have already denuded their agricultural base and have to import grain and other foods to survive.<ref>[http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/8291470/Egypt-and-Tunisia-usher-in-the-new-era-of-global-food-revolutions.html A New Era of Food Revolutions], Ambrose Evans-Pritchard</ref><ref>[http://jsmineset.com/2011/02/24/in-the-news-today-791/ Collapse]</ref>

It is also reported that very complex, delicate negotiations are taking place between debtor and creditor nations to swap government bonds with gold at prices far in excess of the declared "market price" of gold.<ref>[http://www.marketoracle.co.uk/Article25878.html China Buys European Gold], Jim Willie</ref> These so-called "off-market" deals - and possible diversions of government-owned gold to corrupt bankers and political leaders - are signs the Keynesian Endpoint has arrived and the politicians and bankers recognize they have lost control of the economic system and must focus on saving themselves.<ref>[http://lewrockwell.com/wenzel/wenzel113.html Fort Knox Gold], Robert Wenzel</ref><ref>[http://www.marketoracle.co.uk/Article25878.html China Buys European Gold], Jim Willie</ref> Max Keiser reports that it appears powerful nations will negotiate repatriation of their gold and smaller nations will either have to accept their gold is lost or face war if they attempt to repatriate their own gold home.<ref>[http://www.youtube.com/watch?v=8lnslMWhOTw&list=SPC3F29DDAA1BABFCF&index=194 Welcome Home German Gold], Max Keiser</ref> Germany and other countries have started to slowly repatriate their gold in anticipation that gold may not be available at any price in future.<ref>[http://www.lewrockwell.com/spl5/fed-short-germanys-gold.html What if the Fed is Short Germany's Gold?]</ref><ref>[http://lewrockwell.com/thomas-jeff/thomas-jeff16.1.html The Disappearing Gold]</ref>

Finally, it should be noted that, with the collapse of Tsarist Russia, the establishment of the fifth and final central bank of the United States, the destruction of the fiat-issuing fascist regimes in Italy, Germany and Japan post-WWII, and the collapse of communism in the 1990s, there no longer exists any major economy where the banking system is fully government-owned or has any strictly enforceable social responsibilities beyond pure profit motive. All major world economies have now adopted essentially the same monetary system, with profit-driven private banks (government-licensed institutions legally permitted to engage in unlimited credit creation) able to pocket profits during upswings and socialize losses during downswings by use of central bank asset swaps. If critics are correct that all such systems are doomed to severe boom-bust cycles because of excessive expansion of speculative credit and endemic [[moral hazard]], it is to be expected that all major economies will also experience essentially the same kind of environmental and food crises, and even allegedly "strong" economies such as China will experience severe economic downturns at some stage.<ref>[http://mises.org/daily/5070/Bust-Looms-As-China-Booms Bust Looms], Markus Bergstrom</ref><ref>[http://globaleconomicanalysis.blogspot.com/2011/03/bloodstained-property-map-and-trampled.html Bloodstained Property Map], MISH</ref> However, equally, if critics are correct that fractional reserve banking, excessive credit expansion and artificially low interest rates are at the root of all financial crises, then higher reserve ratios and capital requirements for domestic banks (or the existence of heavily controlled nationalized banks) should reduce the severity of economic crises in those economies with higher reserve requirements for their own banks.<ref>[http://www.bloomberg.com/news/2011-02-18/china-increases-banks-reserve-ratio-for-second-time-to-curb-property-boom.html China increases bank reserves to curb inflation], Bloomberg</ref><ref>[http://video.ft.com/ Lex's John Authers and Richard Stovin-Bradford discuss how to regulate banks better and how to handle those that are just too big to fail]</ref>

==Potential solutions==
Many consider it too late to reform the financial system.<ref>[http://www.zerohedge.com/news/2013-05-25/bill-black-our-system-so-flawed-fraud-mathematically-guaranteed Fraud is Guaranteed], Bill Black</ref><ref>[http://lewrockwell.com/stockman/stockman19.1.html A Review of The Great Deformation]</ref><ref>[http://matterhornassetmanagement.com/2013/03/18/get-your-assets-out-of-the-banks-now/ Get Your Assets Out of the Banks - NOW], Egon von Greyerz</ref><ref>[http://news.goldseek.com/LewRockwell/1306767600.php Is Greece the Future of America?], Mike Rozeff</ref><ref>[http://www.marketoracle.co.uk/Article27739.html Financial Slaughterhouse], Ashvin_Pandurangi</ref><ref>[http://www.marketoracle.co.uk/Article27764.html The Big QE2 Shakedown], Mike Whitney</ref><ref>[http://www.youtube.com/watch?v=-GmBoJ7qHYg&feature=player_embedded Simon Johnson INET]</ref><ref>[http://www.guardian.co.uk/business/2010/sep/14/banking-reforms-too-little-too-late Too Little Too Late], UK Guardian, 14 Sept 2010</ref><ref>[http://www.marketoracle.co.uk/Article27583.html Fed Reckoning Day Realities for Investor Pains and Gains], Deepcaster LLC</ref><ref>[http://maxkeiser.com/2013/02/02/kr401-keiser-report-fake-it-til-you-make-it-economy/ Fake It Till You Make It]</ref><ref>[http://www.marketoracle.co.uk/Article39037.html Fiat Currency Witches Brew], Ty Andros</ref> There is now so much debt in the system that the reduction in money supply growth necessary to curb [[malinvestment]] and financial bubbles would only result in financial crises and mass bankruptcies and, ultimately, business assets being transferred to the banking system. This is obvious when one observes that with no debt there is no money. With a slowing economy and reduction in money supply all assets subject to debt would inevitably be flushed through the banking system as a mathematical necessity.<ref>[http://www.moneyasdebt.net/ Money as Debt]</ref> Therefore virtually all assets will ultimately end up under the control or ownership the banking system if the present system is allowed to continue, as slowing money supply growth is inevitable with slowing population and economic growth. This is not true in a true free market monetary system<ref>[http://lewrockwell.com/woods/woods225.html Greenbackers Are Nuts]</ref> but is true of our current government manipulated debt-based system.<ref>[http://www.moneyasdebt.net/ Money as Debt]</ref>

When debt levels are unsustainable there are only a limited number of possible scenarios, and as each country reaches its debt limits each country will need to choose between these alternatives, as Iceland, Ireland, Cyprus, Greece and many other countries have already experienced. The debt is monetized, the debt is forgiven by the creditor, the debt is repudiated by the debtor and defaulted upon, the debt is postponed by temporary suspension of repayments, or the debtor finds unexpected or new ways to pay back the debt, which may include theft or confiscation from others.<ref>[http://www.zerohedge.com/news/2014-01-24/guest-post-how-paper-money-experiment-will-end How The Paper Money Experiment Will End]</ref>

The "Icelandic Solution" involved repudiation.<ref>[http://www.zerohedge.com/node/475643 The Secret Sauce of Iceland's Success Story: Debt Liquidation?]</ref> Private banks were allowed to fail and social security measures for the poor and indebted were increased. However this option is virtually impossible in other larger, less homogeneous countries given the power of the financial services sector over government in most other countries.<ref>[http://www.zerohedge.com/news/2013-01-26/only-3-minutes-worth-listening-davos Interview with Iceland's President Olafur Ragnar Grimson]</ref> It should be noted that all IMF member countries have a central bank at the heart of their financial system.<ref>[http://www.zerohedge.com/news/2013-09-16/25-fast-facts-about-federal-reserve Fast Facts About the Federal Reserve]</ref> The UK went so far as to trigger anti-terrorism legislation against Icelandic banks in a bid to pressure Iceland to pay out claims against its private banks.<ref>[http://reason.com/archives/2012/09/07/iceland-provides-a-blueprint-for-survivi Iceland Shows Other Europeans How to Survive Bankruptcy], ''Reason''</ref>

The simplest and cleanest solution for any debt-fuelled crisis is simply to [[default]] and not attempt to pay back the loans - particularly if the debt has been created unethically or fraudulently.<ref>[http://mises.org/daily/6369/The-Ethics-of-Repudiation The Ethics of Repudiation]</ref><ref>[http://mises.org/daily/5476/ There Is Life After Default], Peter Klein</ref><ref>[http://www.oftwominds.com/blogsept11/Zeus-debt-forgiveness-9-11.html Endgame], Zeus Yiamouyiannis, Ph.D.</ref><ref>[http://globaleconomicanalysis.blogspot.com/2011/02/massive-rout-in-irish-elections.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+MishsGlobalEconomicTrendAnalysis+%28Mish%27s+Global+Economic+Trend+Analysis%29 Default Best Option for Ireland], MISH</ref><ref>[http://mises.org/daily/5449/Defaulting-on-the-Feds-Bonds Defaulting on the Fed's Bonds], Robert Murphy</ref> If, as Paul Krugman and other Keynesians have argued<ref>[http://lewrockwell.com/anderson/anderson330.html Do We Really 'Owe It to Ourselves]</ref> "we owe it to ourselves", then there should be no problem repudiating that debt as it would merely involve an accounting adjustment.<ref>[http://bastiat.mises.org/2013/02/we-only-repudiate-it-to-ourselves/ We Only Repudiate It to Ourselves]</ref> This was the solution chosen by Iceland, even in circumstances which involved powerful international creditors. Despite enormous pressure from the UK government to try to force the Icelandic government to bail out its banks, it chose not to do so and allowed the private banks to default.<ref>[http://www.dailymail.co.uk/news/article-1080233/Icelanders-hit-Brown-freezing-banks-assets-We-terrorists-campaign.html Icelanders hit back at Brown]</ref> The Greek government also partially defaulted on its debts in 2012.<ref>[http://www.bbc.co.uk/news/business-17341381 Greek Default]</ref> David Graeber, author of ''Debt: The First 5000 Years'' has stated a global debt Jubilee is inevitable.<ref>[http://www.youtube.com/watch?v=SxZtfi2pYNo&list=SPPszygYHA9K2ZtV_1KphSugBB7iZqbFyz&index=6 Max Keiser Interview with David Graeber]</ref> However, particularly where government debt default is involved, bankers generally do everything to avoid this "inevitable" outcome because it (a) reduces the value of their asset (debt-based government bonds) (b) reduces or even destroys their income stream (interest on bonds) and therefore may affect their retained earnings in future (and their credit rating and compliance with Basel III rules on Tier 1 capital) (c) can result in a systemic crisis as many banks will be using that government debt to satisfy their liquidity requirements and reduce counterparty risk - even more so under Basel III (which requires a minimum proportion of "liquid" assets to be held by the banks - and those "assets" mainly consist of government bonds) and (d) signals to other countries that it is possible to escape debt without consequence and so potentially reduces the value of government debt in surrounding countries.<ref>[http://globaleconomicanalysis.blogspot.com/2011/05/trichet-goes-ballistic-walks-out-of.html Trichet Goes Ballistic], MISH</ref> Self-interested bankers are therefore often desperate to avoid government debt default, and generally much prefer an economy to be strangled by debt rather than be freed of it.<ref>[http://globaleconomicanalysis.blogspot.com/2011/05/trichet-goes-ballistic-walks-out-of.html Trichet Goes Ballistic], MISH</ref>

Confiscation or theft is often the desperate debtor's only option, if the creditors are so powerful the debtor cannot default. The sudden confiscation of part of "insured" bank depositors' savings in Cyprus is an extreme example of the last option and is the international bankers' and creditor governments' preferred "solution" as it means their debts get repaid, however unjustly.<ref>[http://www.reuters.com/article/2013/03/17/us-eurozone-cyprus-risk-idUSBRE92G0BG20130317 Cyprus bank levy]</ref><ref>[http://www.marketoracle.co.uk/Article39536.html Cyprus Haircut]</ref><ref>[http://www.zerohedge.com/news/2013-03-22/ecb-set-fair-cypriot-standard-living-capital-controls Capital Controls in Cyprus]</ref>

As an example of the consequences of the two alternatives, Iceland did not try to save its private bankers but instead permitted them to default on private bond payments.<ref>[http://www.zerohedge.com/news/2013-01-26/only-3-minutes-worth-listening-davos Interview with Iceland's President Olafur Ragnar Grimson]</ref> Ireland on the other hand guaranteed private bank debt and in doing so subjected the taxpayers of that country to decades of payments for debts that were not incurred on their behalf or for their benefit. Many commentators have observed that in 2010 [[Iceland]] recovered much faster than other countries such as [[Ireland]].<ref>[http://www.smh.com.au/business/iceland-bounces-back-as-pain-leads-to-gain-20101208-18pvm.html Iceland Bounces Back]</ref><ref>[http://www.vanityfair.com/business/features/2011/03/michael-lewis-ireland-201103?printable=true When Irish Eyes Are Crying], Michael Lewis</ref> In his extensive analysis of the aftermath of the banking panic in Ireland, Michael Lewis wrote of his puzzlement that the timid Irish government thought it was beyond the bounds of acceptable political discourse to consider default on privately issued Irish bank bonds, when Iceland successfully defaulted and only after this did they nationalize their banking system.<ref>[http://www.vanityfair.com/business/features/2011/03/michael-lewis-ireland-201103?printable=true When Irish Eyes Are Crying], Michael Lewis</ref> Commentators still dispute the relative costs and benefits of the policies implemented in Iceland and Ireland. The inflation rate has remained higher but unemployment rate remained substantially lower in Iceland compared to Ireland.<ref>[http://mises.org/daily/6575/Inflation-Has-Not-Cured-Icelands-Economic-Woes Inflation and Iceland]</ref><ref>[http://www.marketoracle.co.uk/Article42958.html Bank Guarantee Bankrupted Ireland]</ref>

In the absence of outright default, some governments simply delay addressing the issues of debt and default, with the central bank buying government bonds and manipulating the stockmarket and other asset and commodity markets to keep solvency in the banking system and government alive.<ref>[http://lewrockwell.com/barnett/barnett39.1.html Are the Federal Reserve and Its Primary Dealer Banks Manipulating the Stockmarket?]</ref><ref>[http://www.gold-eagle.com/editorials_12/lundeen061712.html Market Manipulation]</ref> Time may allow re-inflation of the markets through the gradual injection of new [[debt money]] into the system through new borrowings. It is a rare "[[black swan]]" event for a cluster of private businesses or banks to default at the same time and governments often hope that this will not happen again once it has happened already. However, if the crisis is one of national solvency, waiting passively for recovery may only delay - and exacerbate - the final catastrophe as the debt-based monetary system pushes all businesses slowly towards the next crisis by confusing and misleading market participants with false price signals, particularly as they relate to interest rates. Once the next crisis hits because of even more confused price signals due to government interference in the market for money, time is something panicked financiers and investors are least likely to want to give up when the threat is never getting their [[money]] out of the imploding investment [[bubble]]. In extreme cases [[bank]]s could set up "independent" corporate investment vehicles to buy the assets associated with the [[bad debt]],<ref>[http://www.dealbreaker.com/2007/10/citigroup_looks_to_lend_money.php Citigroup looks to lend money]</ref> thereby allowing [[borrower]]s to liquidate their investments and allow time for the markets to re-inflate. Alternatively, these "sour" loans, that have gone bad through too much debt overwhelming the markets, could be dumped or "hidden" on the central bank's balance sheet, and swapped for more secure government debt (financed through compulsorily acquired taxes, which are immune from the risk of private bankruptcy). However the holding costs involved in these measures would be extremely high and would not guarantee that the losses could be averted if no new gullible investors could be found to offload these distressed assets.<ref>[http://www.youtube.com/watch?v=n8w6Nx2rfiE A Wikileaks for the Fed?]</ref> More fundamentally, these short-term "parachutes" used after bubbles burst do not save ordinary borrowers from [[foreclosure]] and [[bankruptcy]], nor do they address the pernicious long-term dysfunctional aspects of [[fractional reserve banking]] described above. These problems are temporarily averted, only to be dealt with yet again by the next generation of indebted governments and peoples.<ref>[http://www.informationclearinghouse.info/article18431.htm The Era of Global Financial Instability, by Mike Whitney]</ref><ref>[http://www.youtube.com/watch?v=n8w6Nx2rfiE A Wikileaks for the Fed?]</ref> Simply deferring the crisis and repeatedly bailing out the banks may simply entrench misallocation of resources within the financial and governmental sectors, starving private businesses of the savings needed to invest and produce.<ref>[http://www.zerohedge.com/news/2013-01-26/only-3-minutes-worth-listening-davos Interview with Iceland's President Olafur Ragnar Grimson]</ref>

The preferred long-term free market solution (outright default and a return to free market money and the abolition of legal tender and central banks) is extremely unlikely.<ref>[http://seekingalpha.com/article/273466-4-reasons-the-u-s-will-never-return-to-a-gold-or-silver-standard 4 Reasons the US Will Never Return to a Gold or Silver Standard]</ref> In addition, given that bankers and central banks "stole" most of the people's gold, with mass confiscations dating back to the 1930s in the US<ref>[http://www.gold-eagle.com/editorials_08/nielson031411.html The Great Gold Bait-And-Switch] Jeff Nielson</ref> and earlier in Europe,<ref>[http://www.lewrockwell.com/north/north107.html Buyers of Gold], Gary North</ref> an immediate and uncompensated<ref>[http://theeconomiccollapseblog.com/archives/10-things-that-would-be-different-if-the-federal-reserve-had-never-been-created 10 Things That Would Be Different]. Note: "uncompensated" in this context means "without allowing widespread debt default with minimal punishment" or "without the issuance of debt-free money to the general populace prior to a return to the gold standard"</ref> return to the gold standard now would simply further enrich bankers and impoverish workers through crushing deflation, as the value of the assets the middle class had previously saved in (housing and mutual funds) collapsed and gold (the "elite banker's money") suddenly soared in value,<ref>[http://www.zerohedge.com/news/2013-02-26/central-banks-cannot-create-wealth-only-liquidity Central Banks Cannot Create Wealth]</ref> allowing bankers yet another generation of largesse from past theft. It should be noted that one of the principal financial assets of both the IMF and the US central bank is confiscated gold (the other being government bonds).<ref>[http://www.xat.org/xat/worldbank.html The History of Money]</ref> Less than 1% of all pension fund assets held by the general public are currently allocated to physical precious metals and many mutual funds have mandates effectively prohibiting them from holding physical precious metals.<ref>[http://sgtreport.com/2011/07/gold-silver-and-pension-funds-portfolio-diversification-myths/ Gold, Silver and Pension Funds]</ref> If the gold price were to soar, the very institutions most responsible for financial disorder would be those most likely to benefit from the chaos, having already positioned themselves to benefit from any price explosion in gold.

Given that both the Icelandic and radical free market solutions are effectively impossible to implement to any significant extent, some analysts of the current debt-based monetary system consider that, after decades of excess debt and fiat money, the current capital structure is so distorted and malinvested, the food supply so industrialized and vulnerable to shocks, and the environment generally so polluted from government-protected mining and mass industrialization that there is no hope for the vast majority of the middle class and indeed the mass of humanity in the coming decades as a combination of periodic confiscation and selective debt monetization destroys any stability in the world economy.<ref name="death"/>

Getting back to a market-based banking system would require, at minimum: (1) abolition of all deposit insurance; (2) eliminating the doctrine of "Too Big to Fail" by prohibiting the central bank from buying any assets from insolvent banks; and (3) allowing the market to set interest rates by removing this price fixing power from the central bank and allowing the real inter-bank market to set interest rates.<ref>[http://bastiat.mises.org/2012/06/misesians-in-mordor-the-video/ Misesians in Mordor]</ref> However, such changes to the global monetary system would likely trigger immediate bank runs on the weakest banking institutions and (most likely) a systemic crisis, resulting in a sudden deep depression in the short term and a period of minimal or no capital investment in the medium term as access to lending dried up from suddenly illiquid financial institutions. Although in the minds of many Austrians, the resulting system would be greatly preferable to the current dysfunctional and unsustainable system, the transition period would likely be so traumatic that no democratic government (or no government at all) would likely countenance such deregulation, nor would they likely be allowed to by the banks themselves.

Government and banking have become so intertwined there is virtually no difference between them, as banks bail out governments who in turn bail out banks in Ponzi scheme fashion.<ref>[http://www.guardian.co.uk/commentisfree/2012/mar/22/greece-european-banks-eurozone European banks saving Greece or themselves?]</ref>

Coercive, rule-bound government, by its very nature, can only perpetuate itself if it constantly maintains a monopoly of force and is widely respected as the final arbiter of disputes between any two parties within its jurisdiction.<ref>[http://www.dailypaul.com/140907/hans-hoppe-on-why-he-thinks-limited-government-is-impossible Hans Hermann Hoppe on why limited government is impossible]</ref> Governments do not obtain their revenue through donations or voluntary payments but rather either tax the populace or print fiat money to spend on projects the government deems worthwhile. There is therefore an inherently dangerous power in government spending. Good government exists to provide public goods, regulate externalities and protect and enforce property rights.<ref>[http://blog.mises.org/6546/james-wilson-on-the-purpose-of-government-and-the-constitution/ James Wilson on the purpose of government], James Galles</ref> However, if government force is used not for public purposes but to protect and enhance the power of a tiny political and financial elite, parasitic thieving forces can take over monopoly government and destruction of the economy can occur without the ability of the people to revolt or defend themselves against the depredations of government force.<ref>[http://www.lewrockwell.com/orig11/wile13.1.html One World Government], Hans Hermann Hoppe</ref><ref>[http://www.youtube.com/watch?v=DNcDu0z9UfQ Matt Tiabbi Interview on UBS Scandal]</ref> Destructive policies can therefore continue for longer than the survival of the economy itself, especially if people have been lulled into complacency by a long history of relatively benign government whilst parasitic forces slowly take over power from behind the scenes.<ref>[http://www.lewrockwell.com/orig11/wile13.1.html One World Government], Hans Hermann Hoppe</ref> Some consider that modern democracy has been subverted and that the two-party choices being presented today are a charade, with little real difference between duopoly political parties, which are just shams to cover the slow but inexorable takeover of the levers of power by the financial "elite", who do not respect nor care about the will of the people, who they consider too stupid or powerless to be treated seriously.<ref>[http://www.youtube.com/watch?v=DNcDu0z9UfQ Matt Tiabbi Interview on UBS Scandal]</ref><ref>[http://globaleconomicanalysis.blogspot.com/2011/06/vote-for-whoever-you-want-bailout.html Vote for Whoever You Want], MISH</ref><ref>[http://lewrockwell.com/wile/wile36.1.html Stop Clinging to False Hope], Anthony Wile</ref><ref>[http://www.marketoracle.co.uk/Article28949.html United States of Denial], James West</ref> Since the mid-1990s and even earlier it has been argued by many commentators that the gold default of August 15, 1971 would inevitably lead to economic disaster due to the distorting and parasitic effects unlimited fiat money and credit creation would have on the productive private economy.<ref>[http://dailyreckoning.com/armageddon-can-wait/ Armageddon Can Wait], Bill Bonner</ref><ref>[http://www.nytimes.com/2011/08/01/business/deal-may-avert-default-but-some-ask-is-that-good.html?pagewanted=1&_r=1&hpw Deal May Avert Default, but Some Ask 'Is That Good?']</ref><ref name="Landis_Reprieve" /> The relentless exponential growth in retirement and welfare benefits will now be enough to bankrupt many Western governments (including the United States).<ref name="Landis_Reprieve" /><ref>[http://www.amazon.com/Boomergeddon-Deficits-Government-Devastate-Retirement/dp/1892538539/ref=sr_1_1?ie=UTF8&qid=1305008253&sr=8-1 Boomergeddon], James A. Bacon Jr</ref> No one in power today appears willing to tackle either the corrupt banking industry or government largesse.<ref>[http://www.youtube.com/watch?v=DNcDu0z9UfQ Matt Tiabbi Interview on UBS Scandal]</ref><ref>[http://globaleconomicanalysis.blogspot.com/2011/06/vote-for-whoever-you-want-bailout.html Vote for Whoever You Want], MISH</ref><ref>[http://www.prudentbear.com/index.php/thebearslairview?art_id=10538 Sayonara, Washington], Martin Hutchinson</ref> Too many in power have a vested interest in the continuation of the system of spiraling inflation and debt to stop it, even if it could be stopped.<ref>[http://www.youtube.com/watch?v=DNcDu0z9UfQ Matt Tiabbi Interview on UBS Scandal]</ref><ref>[http://www.zerohedge.com/article/guest-post-global-economy-burns-while-its-leaders-fiddle Global Economy Burns, While Its Leaders Fiddle], Nomi Prins, ZeroHedge</ref> Whilst the general economy suffers, old infrastructure collapses, man-made environmental crises abound, retailers go bankrupt, millions are foreclosed upon and are left homeless (whilst at the same time hundreds of thousands of houses lie empty and decaying) and real average incomes are decimated, perversely, banking bonuses and lobbyists' incomes have skyrocketed and the powers of the Fed and other central banks have increased because of increased regulatory duties despite their previous failures.<ref>[http://www.guardian.co.uk/politics/2011/jan/10/banks-unlimited-bonuses-ministers Banks given go-ahead to pay unlimited bonuses], Guardian UK</ref><ref>[http://www.creditcrunch.co.uk/forum/topic/9253-banking-cheats-will-always-prosper/ Bank Cheats Will Always Prosper], CreditCrunch.co.uk</ref><ref>[http://dailyreckoning.com/the-expanding-industry-of-us-government/ The Expanding Industry of US Government], Bill Bonner</ref> Despite this obvious incompetence and despite repeated failures of policy at the highest levels, anyone advocating solutions beyond those approved within failed mainstream two-party thought is commonly labelled "insane", "crazy" or an "extremist".<ref>[http://www.salon.com/news/opinion/glenn_greenwald/2010/05/28/crazy Who are the real "crazies"?], Glenn Greenwald, Salon.com</ref><ref>[http://lewrockwell.com/orig11/mullen-t4.1.1.html Extremism is the New Race Card], Tom Mullens</ref><ref>[http://www.telegraph.co.uk/finance/financialcrisis/8669352/Global-slump-warnings-if-US-triggers-insane-default.html Global slump warning if US triggers 'insane' default], Ambrose Evans-Pritchard</ref> Noted gold investor, Jim Sinclair, has publicly stated that the chaos has one cause - bankers have bought governments around the world and today's bankers are little more than irredeemably shallow "sociopaths", unable to grow a conscience and unable to foresee or care about the broader societal consequences of their actions beyond their own incestuous social groupings.<ref>[http://jsmineset.com/2009/08/31/china-invokes-a-stop-loss-on-otc-derivatives/ OTC Derivatives], Jim Sinclair</ref><ref>[http://maxkeiser.com/2011/07/17/alex-jones-on-satanic-rituals-of-bohemian-grove/ Alex Jones on Bohemian Grove], RTTV</ref> Leading British specialists in the pathology of the psychopath, Professors Robert Hare and Paul Babiak suspect the banking industry does indeed attract psychopaths and probably has a much higher proportion of mentally unstable psychopaths as executives compared to other industry sectors, although their comprehensive test (determining the degree of psychopathology in the workplace) has yet to be applied to the banking sector or to senior government officials or politicians.<ref>[http://www.ft.com/intl/cms/s/0/41fe2882-9cbe-11e0-bf57-00144feabdc0.html#axzz1QH9AQOwG Alfred Hitchcock' 'The Bankers'], James Makintosh, FT.com</ref> Michael Price, co-director of the Centre for Culture and Evolutionary Psychology at Brunel University in London agrees that the characteristics that make for good traders and investment bankers are very similar to those that define psychopaths. Former UK drug tsar David Nutt has stated that the banking crisis was caused by too many bankers taking cocaine.<ref>[http://www.telegraph.co.uk/finance/financialcrisis/9993266/Financial-crisis-caused-by-too-many-bankers-taking-cocaine-says-former-drugs-tsar.html Financial crisis caused by too many bankers taking cocaine], ''Telegraph''</ref> Therefore, given their likely sociopathic mind-set and hedonistic cocaine drug culture, provided they themselves are acquiring a greater share of gross national income, many bankers simply do not care about the consequences and will continue to label others as "crazy" or "insane" or "terrorists" for so long as it gives them cover to engage in their own [[embezzlement|criminal]] conduct and for so long as it permits the in-bred corruption to continue at the highest levels.<ref>[http://www.mises.org/daily/6314/Why-Bankers-Avoid-the-Public-Eye Banking and the State]</ref><ref>[http://blogs.telegraph.co.uk/news/nilegardiner/100099341/joe-biden-compares-the-tea-party-to-terrorists-is-this-the-most-crass-and-nasty-white-house-in-modern-us-history/ Joe Biden compares the Tea Party to terrorists], Nile Gardiner, UK Telegraph</ref> If the charade collapses and the elite are threatened, they will simply kill anyone who threatens them, as they have proven to do repeatedly in the past.<ref>[http://www.lewrockwell.com/lewrockwell-show/2011/02/15/187-confessions-of-an-economic-hit-man/ Confessions of an Economic Hit-Man], John Perkins</ref>

It should be noted that average bankers still earn around US$370,000<ref>[http://www.guardian.co.uk/business/2011/jan/14/jp-morgan-bankers-share-10bn Anger as JP Morgan bankers get $10bn pay and bonus pot]</ref> (or around £236,000 in the UK)<ref>[http://www.guardian.co.uk/business/2011/feb/15/barclays-capital-average-pay-236000-pounds Barclays investment bankers see average pay rise to £236,000]</ref> and this has steadily increased even in the aftermath of the financial crisis. Those who head up the "Too Big To Fail" banks earn around US$18 million per year, with some executives doubling their own pay in 2010.<ref>[http://www.guardian.co.uk/business/2011/apr/02/lloyd-blankfein-executive-pay-bonuses Goldman Sachs CEO's pay nearly doubles despite slump in profits]</ref> Lawyers who service and support the international banking and business community are reported to be earning up to US$2 million a year even in small peripheral countries such as Australia.<ref>[http://www.afr.com/p/national/legal_affairs/talent_war_pushes_star_lawyers_pay_ZDlK7zEXWaISbNy1QCtIUO Anger as JP Morgan bankers get $10bn pay and bonus pot]</ref>

Given many of these people are not actually producing services people would voluntarily pay for in a genuine free market economy, many of these service providers associated with the issuance and distribution of monopoly currency would be made redundant or be rendered unemployable almost immediately upon a return to a true free market gold standard. It is to be expected that these people would be violently opposed to any change in the ''status quo'' given the dramatic change in lifestyle that this would necessitate. In particular, it is to be expected that these people would specifically oppose the abolition of legal tender laws and fight against any formal declaration by any government that fractional reserve banking is a form of [[embezzlement]] or counterfeiting, or that the current financial system is a [[Ponzi scheme]] (which are generally illegal in most Western countries if they are not government-supported).

Jim Sinclair suggests that many senior participants in the international banking and derivatives industry should be jailed<ref>[http://jsmineset.com/2010/10/31/jims-mailbox-573/ Debt Burden Being Transferred], Jim Sinclair</ref> to protect the public from repeatedly being "raped"<ref>[http://jsmineset.com/2010/11/21/in-the-news-today-713/ EU Ministers Said To Plan Meeting Over Ireland], Jim Sinclair</ref> by their scams and has the following conclusion on his website:<ref>[http://jsmineset.com/2010/11/09/in-the-news-today-701/ There is no practical solution], Jim Sinclair</ref>

{{quote|For years I have been telling you that there is NO PRACTICAL SOLUTION to the total of all the mistakes that have been made since Roosevelt, in a depression, started it all.}}

Jim Sinclair considers it too late to save the system<ref>[http://www.youtube.com/watch?v=IF24atvNkSo&feature=player_embedded Jim Sinclair Interviewed by James Turk] Quote: "Who needs enemies when we have the financial leadership we have?"</ref> and recommends people become self-sufficient and buy gold to await the inevitable collapse of the political and economic system and the associated breakdown in the division of labor.<ref>[http://jsmineset.com/2011/04/07/the-system-has-failed/ The System Has Failed], Jim Sinclair</ref>

Max Keiser has stated that the culture of actual ''physical'' sexual coercion and harrassment allegedly exhibited in the financial services industry is simply symptomatic and an outgrowth of a culture of ''financial'' rape and exploitation.<ref>[http://www.youtube.com/watch?v=skwj6e9xvH8&feature=player_embedded#at=102 Savers vs Speculators] Quote: Max Keiser: "Munich Re, a financial terrorist responsible for creating ghettos. Financially disadvantaged folks who are on the short end of the 'ghettoization' of the financial terrorist schemes...are forced to wear ''yellow armbands'' and be ''sex slaves'' for their German hosts." Stacy Herbert: "Yes. And be stamped on their arms afterward to prove that they were used." Max Keiser: "Yes. Let's not forget the little serial code-stamp on the wrist as part of the package." Stacy Herbert: "But Max, the story here is that this goes from the very bottom. These are just agents going door-to-door selling insurance products in the financial services industry. The top of the pyramid of the banking Establishment is Dominique Strauss-Kahn." Max Keiser: "This is a culture. Dominique Stauss-Kahn is part of the banking ''culture''. There's Dominique Strauss-Kahn, Lloyd Blankfein, Jamie Dimon, this guy Pandit over at Citigroup, the CEO just paid himself $42 million for stealing $420 million - they have a culture of predator behavior where once you - like a serial killer - once you steal money from people with mortgage fraud or with banking fees that are illegitimate or with collateralized debt obligations you get a taste for serial financial killing. You graduate to these higher crimes and you become a Dominique Strauss-Kahn or a Lloyd Blankfein or a Jamie Dimon where serial financial murder is part of your day-to-day life. That's the culture you live in."</ref> In order to be part of the system, you must be blind to its consequences. Therefore, no one with a conscience can become powerful enough within the system to fundamentally change trajectory from its current catastrophic path.<ref>[http://www.youtube.com/watch?v=WqyCjR9JEMA&feature=player_embedded Nothing Stops Banks], Matt Taibbi</ref>

Ironically, many victims of rape and abuse come to blame themselves and never fight back, preferring to adapt to a life of abuse or enslavement. This is called "learned helplessness" in psychological terms. Doug French finds a direct analogy between the dynamics of ''physical'' rape and ''financial'' abuse, with many indebted individuals ''blaming themselves'' for their predicament and refusing to default on their debts, even though it would be in their clear financial interest to do so.<ref>[http://mises.org/daily/5409/BatteredHomeowner-Syndrome Battered Homeowner Syndrome], Doug French. Quote: 'Lenore Walker is the pioneer in the field of battered-spouse syndrome, with her book The Battered Woman. She believes that experiencing the repeated cycles of violence can result in a spouse developing "learned helplessness," a psychological state identified by psychologist Martin Seligman. The abused believe they lack control over their situation and are convinced escape is impossible. Their motivation to escape diminishes as they become increasingly passive.

Walker explains that the constant cycles of violence and reconciliation result in the following beliefs:

The abused

believes that the violence was his or her fault,
has an inability to place the responsibility for violence elsewhere,
fears for his/her life and/or the lives of his/her children, and
has an irrational belief that the abuser is omnipresent and omniscient.

These beliefs are strikingly similar to what underwater homeowners feel.

The abused believes that the violence was his or her fault. "It was my own fault for buying a house at the top of the market in the first place and borrowing too much money to do it." "I made my bed, now I must sleep in it, no matter how much financial pain it causes me."

The abused has an inability to place the responsibility for violence elsewhere. "It's nobody's fault but my own," say people with 20/20 hindsight. "Nobody made me sign the mortgage. I'm so stupid. The bank doesn't have to negotiate with me."

The abused fears for his/her life and/or the lives of his/her children. "My credit will be ruined. I won't be able to rent an apartment. My low credit score may keep me from getting a job. I don't want to uproot the kids and have to admit that daddy and mommy made a financial mistake."

The abused has an irrational belief that the abuser is omnipresent and omniscient. The abuser in this case is the lender or owner of the mortgage. The borrower fears that these lenders can take everything they have, leave them with nothing, and make their lives miserable forever.

At the same time, default moralizers reinforce these feelings. They have no sympathy for those making a poor housing and mortgage choice. A person must suffer the consequences of their actions, it's claimed.'</ref>

John Perkins, author of ''Economic Hitman'', has openly stated that the U.S. government is merely a front runner for major corporate interests and has brutally assassinated leaders of countries where reform has been attempted.<ref>[http://www.youtube.com/watch?v=xmU9R-BaFIQ Max Keiser Interview with John Perkins]</ref> The zealotry and extremism against genuine and honest monetary reformers on the one hand and the payoffs and largesse given to unprincipled and corrupt supporters of the current monetary regime on the other ensure there is no path of reform left for those potential leaders with a conscience.<ref>[http://www.zerohedge.com/article/more-political-capture-goldman-hires-top-republican-fed-transparency-foe-spends-more-time-se More Political Capture], ZeroHedge</ref>

Dimitry Orlov, author of ''Reinventing Collapse'', has written extensively about the striking similarities between the collapse of the USSR and the multiple environmental, economic and social crises facing the USA. He also predicts economic, political and social collapse in much of the West and in particular predicts that peak oil will result in some countries being cut off completely from oil supplies resulting in sudden social upheaval and starvation and believes that it is too late for any kind of meaningful reform:<ref>[http://www.youtube.com/watch?v=KLdwzcA9ZdM&feature=player_embedded#at=997 Dimitry Orlov Interview with Max Keiser - ''Reinventing Collapse'']</ref>

{{quote|(US military adverturism overseas) is just a very striking example of being unable to stop, even though what you're doing isn't actually working...

By demolishing as much of the social infrastructure as exists in the country... you will end up with an even less literate population that will be unable to oppose the government, unable to stand up for themselves and demand that their rights and needs be met...

People who think they can somehow skirt the financial system are wrong. They will be dominated by the Bernankes of this world and others. There isn't really a way out except to make do without money. And that's kind of what I try to explain to people is: Reduce your needs for any kind of interaction with the official economy and you will do better.}}

Given these repeated financial crises arising from the fiat monetary system, many [[monetary reform]]ers predict that there will inevitably be widespread default or hyperinflation or depression - or most likely all three simultaneously in what Ludwig von Mises predicted would be a "final and total catastrophe" of our unsustainable, Ponzi-like, fiat monetary system.<ref>[http://mises.org/daily/5041/Whats-Behind-the-Currency-War What's Behind the Currency War], Anthony Mueller</ref> After this "catastrophe"<ref name="Landis_Reprieve">[http://www.goldensextant.com/SavingtheSystem.html Fiat's Reprieve: Saving the System, 1979-1987], Robert K. Landis, August 21, 2004.</ref> in which a significant proportion of the population may die through starvation or war<ref>[http://lewrockwell.com/bonner/bonner602.html We're all going to die]</ref><ref>[http://www.zerohedge.com/article/20-signs-horrific-global-food-crisis-coming?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+zerohedge%2Ffeed+%28zero+hedge+-+on+a+long+enough+timeline%2C+the+survival+rate+for+everyone+drops+to+zero%29 20 Signs], ZeroHedge</ref><ref>[http://www.lewrockwell.com/adams-m/adams-m15.1.html US Agriculture Collapse]</ref><ref>[http://www.marketoracle.co.uk/Article26605.html Population Reduction], Chris Kitze</ref><ref>[http://www.rickackerman.com/2011/03/getting-the-jump-on-a-possible-food-shortage/ Getting the Jump on Food Shortages], Marilyn Ackerman</ref><ref>[http://www.goldismoney2.com/archive/index.php/t-524.html?s=d418ff253326772a09e1a8d992da7753 Venetian Bankers and the Dark Ages]</ref><ref>[http://mises.org/daily/6142/The-Apocalyptic-Vision-of-The-Road The Road], Ben O'Neill</ref> a spontaneous market-induced return to the [[gold standard]] is anticipated to be the most likely result.<ref>[http://www.youtube.com/watch?v=VMngK0t5WkY Mike Maloney interview with Max Keiser], The Keiser Report</ref><ref name="Landis_Reprieve" /><ref>[http://globaleconomicanalysis.blogspot.com/2011/02/us-dollar-about-to-lose-reserve.html US Dollar About to Lose Reserve Currency Status: Fact or Fiction?], MISH</ref><ref>[http://www.marketoracle.co.uk/Article40253.html The Great Gold Redemption], Peter Schiff</ref> Other possible solutions following the catastrophe include a return to legally enforced full reserve banking combined with the issuance government-issued debt-free [[fiat currency]], or [[free banking]] and the issuance of private coinage and private money. If these solutions are not initiated soon, it can be expected that a complete financial "meltdown" will ensue at some stage, as environmental crises and destruction of arable land slow GDP growth in developing nations and fewer young people in developed economies can be found who are willing to go into debt in sufficient magnitude to pay off the debts that have already been accumulated.<ref name="Bonner_Swan" /><ref name="Landis_Reprieve" /> As extreme inequality increases, [[foreclosure]]s mount and financial crises repeatedly erupt, many believe a political crisis will eventually result in calls for revolution and fundamental [[monetary reform]].<ref>[http://www.youtube.com/watch?v=uV_gwvSibmM&feature=player_embedded#at=510 Max Keiser on Alex Jones]</ref><ref>[http://www.youtube.com/watch?v=VMngK0t5WkY Mike Maloney interview with Max Keiser], The Keiser Report</ref><ref name="Landis_Reprieve" /> However, as noted above, some commentators consider that it is already too late to avoid a combined financial, environmental and demographic catastrophe even if reform is now attempted.<ref>[http://globaleconomicanalysis.blogspot.com/2011/03/oil-prices-are-double-edged-sword-peak.html Peak Everything?], MISH</ref><ref>[http://www.population-security.org/28-APP2.html NSSM 200 Directive], Henry A. Kissinger, April 24, 1974</ref><ref>[http://www.youtube.com/watch?v=0KInB2rvgaY&feature=fvsr Eco Eco Disaster], Keiser Report</ref>

Even if worldwide economic catastrophe cannot be averted at this stage of the metastasizing financial crisis, choices will still need to be made by each government in response to the crisis. On-going, worsening, [[debt]]-created crises in the economy and society (and the unsustainable damage to the [[environment]] caused by debt-created [[overconsumption]]) are likely to turn monetary and economic policies either to the extreme left or to the extreme right, as there are a number of competing solutions to the debt-based monetary "problem".<ref>[http://www.youtube.com/watch?v=jqjyk2cx5WU&feature=player_embedded#at=696 Taste of Freedom E126], Max Keiser, Keiser Report</ref> It should be noted that some commentators consider that Western governments have in recent years chosen a combination of the "worst" of all possible options: bailing out banks and increasing government spending and indebtedness whilst periodically trying to enforce austerity against the middle class and the ordinary working class.<ref>[http://www.zerohedge.com/news/2013-01-26/daniel-hannan-destroys-3-unquestionable-myths-our-crisis Daniel Hannan Oxford Speech]</ref> Some have called Western government policy reactions to the financial crisis as a decisive move towards "Crony Capitalism" that is neither "free market" nor "socialist" but rather the last desperate acts of a corrupt banker-government cabal of "counterfeiters".<ref>[http://www.zerohedge.com/news/2013-02-06/guest-post-all-well All Is Well], Jim Quinn</ref><ref>[http://www.mises.org/daily/6314/Why-Bankers-Avoid-the-Public-Eye Banking and the State]</ref><ref>[http://www.marketoracle.co.uk/Article37021.html Why We Are Bailing Out the Banks], Jesse</ref><ref>[http://www.economist.com/news/books-and-arts/21565142-how-america-bailed-out-banks-rather-its-citizens-crisis-mismanagement How America bailed out the banks rather than its citizens] ''The Economist''</ref><ref>[http://www.lewrockwell.com/rothbard/frb.html Fractional Reserve Banking], Murray Rothbard</ref> If this is correct, the destruction of economic capital in those countries adopting the Crony Capitalist model in response to the financial crisis will likely result in the descent into quasi-Third World status.<ref>[http://seekingalpha.com/article/309501-how-the-u-s-is-quickly-becoming-a-third-world-country-part-1 How the US is quickly becoming a Third World Country], Seeking Alpha</ref><ref>[http://www.lewrockwell.com/spl2/us-becoming-third-world.html 10 Signs the US is becoming a Third World Country]</ref><ref>[http://www.youtube.com/watch?v=qDKvSMZNgjc Peter Schiff Rips Paul Krugman on Economy]</ref><ref>[http://www.zerohedge.com/news/2013-07-24/guest-post-bankers-own-world Bankers Own the World]</ref>

===Libertarians, Austrians and commodity money===

[[Libertarians]] and [[Austrian School]] supporters envision a voluntary society of free markets (where banks - however large - are allowed to fail if they cannot perform their obligations),<ref>[http://www.zerohedge.com/news/2013-01-26/daniel-hannan-destroys-3-unquestionable-myths-our-crisis Daniel Hannan Oxford speech]</ref> small government<ref>[http://www.prudentbear.com/index.php/thebearslairview?art_id=10473 Models of Capitalism], Michael Hutchinson</ref> and the abolition of monopolistic legal tender laws,<ref>[http://mises.org/daily/5562/The-Real-Solution-to-the-Debt-Problem The Real Solution to the Debt Problem], David D'Amato</ref><ref>[http://lewrockwell.com/paul/paul766.html Legalize Currency Competition], Ron Paul</ref> allowing money backed by a ''free market''<ref>[http://www.lewrockwell.com/blog/lewrw/archives/94712.html Subcommittee Explores Sound Money]</ref><ref>[http://mises.org/daily/5562/The-Real-Solution-to-the-Debt-Problem The Real Solution to the Debt Problem], David D'Amato</ref> [[gold standard]] or [[silver standard]] to come back in circulation (or some other free market money system such as Bitcoin).<ref>[http://www.salon.com/2013/03/22/a_libertarian_nightmare_bitcoin_meets_big_government/ Bitcoin]</ref><ref>[http://lewrockwell.com/north/north1009.html Counterfeit Gold Standards], Gary North</ref><ref>[http://lewrockwell.com/orig11/krolman5.1.1.html Accidentally Conceived in 1971], Arthur M.M. Krolman</ref><ref>[http://www.marketoracle.co.uk/Article27532.html Why Monetary Expansion Must Stop], Patrick Barron</ref><ref>[http://www.marketoracle.co.uk/Article26339.html Silver and Opium], Antal E. Fekete</ref><ref>[http://www.marketoracle.co.uk/Article25212.html The Faults of FRB], Thorsten Polleit</ref> It should be noted that even a partial return to the gold standard (allowing foreign central banks to redeem US government bonds in US gold) would result in the gold price having to rise to approximately $20,000 per ounce.<ref>[http://www.zerohedge.com/news/2013-02-26/central-banks-cannot-create-wealth-only-liquidity Central Banks Cannot Create Wealth]</ref><ref>[http://www.youtube.com/watch?v=2rJspP6q3g8 Mike Maloney Interview with Max Keiser]</ref>

It must be emphasized that a ''necessary'' pre-condition in establishing a true free-market order would be the complete abolition of all legal tender laws<ref>[http://www.nysun.com/opinion/ron-paul-upping-the-ante-in-his-campaign/87502/ Ron Paul Upping the Ante]</ref> and the abolition of monopolistic central banking, including repeal of the [[Federal Reserve Act]] of 1913.<ref>[http://mises.org/daily/5562/The-Real-Solution-to-the-Debt-Problem The Real Solution to the Debt Problem], David D'Amato</ref><ref>[http://www.drschoon.com/articles%5CSilverGoldAndTheLastAmericanHeroJFK.pdf Silver, Gold and the Last American Hero JFK], Darryl Robert Schoon. Extracted quote from Ron Paul: "The United States Constitution grants to Congress the authority to coin money and regulate the value of the currency. The Constitution does not give Congress the authority to delegate control over monetary policy to a central bank. Furthermore, the Constitution certainly does not empower the federal government to erode the American standard of living via an inflationary monetary policy." Note: Another argument – that the power to "coin" money precludes issuance of paper money, and that the government must redeem paper money with "precious metal" – was dismissed as frivolous in ''Milam v. United States'', citing the Legal Tender Cases.</ref><ref>[http://www.lewrockwell.com/blog/lewrw/archives/73833.html End the Fed], Freedom Watch</ref><ref>[http://mises.org/daily/4860 Money: Sound and Unsound], Mark Thornton commentary on Joseph Salerno's book</ref><ref>[http://www.prudentbear.com/index.php/thebearslairview?art_id=10471 Gold Standard Renaissance?]</ref><ref>[http://www.marketoracle.co.uk/Article24632.html The Gold Standard Never Dies], [[Lew Rockwell]]</ref><ref>[http://www.prudentbear.com/index.php/thebearslairview?art_id=10471 Gold Standard], Michael Hutchinson</ref><ref>[http://mises.org/store/Money-Bank-Credit-and-Economic-Cycles-P290C0.aspx Money, Bank Credit and Economic Cycles], Jesus Huerta de Soto, Mises Institute ISBN: 978-1-933550-39-8</ref><ref>[http://radio.goldseek.com/griffin04.10.10.php Goldseek interview] with [[G. Edward Griffin]]</ref><ref>See also these [[Murray Rothbard]] articles: [http://www.mises.org/money.asp What Has Government Done to Our Money?], [http://www.mises.org/story/1829 The Case for the 100% Gold Dollar]; [http://www.lewrockwell.com/rothbard/cartelization.pdf The Fed as Cartel], [http://www.lewrockwell.com/rothbard/rothbard191.html Private Coinage], [http://www.lewrockwell.com/rothbard/rothbard190.html Repudiate the National Debt]; [http://www.lewrockwell.com/rothbard/rothbard181.html Taking Money Back], [http://www.lewrockwell.com/rothbard/rothbard163.html Anatomy of the Bank Run], [http://www.lewrockwell.com/rothbard/rothbard128.html Money and the Individual]</ref> "Capitalism" or "the free market" cannot be blamed or held responsible for current dire economic conditions given this coercive government prohibition against competition in currency creation.<ref>[http://mises.org/daily/5562/The-Real-Solution-to-the-Debt-Problem The Real Solution to the Debt Problem], David D'Amato</ref> Some Keynesians dismiss this desire to return to the gold standard by pointing out that financial crises occurred prior to the creation of the Fed.<ref>[http://www.pbs.org/newshour/businessdesk/2013/06/paul-krugman-on-why-david-stoc.html Paul Krugman Interview]</ref><ref>[http://www.frbsf.org/economic-research/publications/economic-letter/2013/may/crises-before-after-creation-fed/ Crises Before and After the Fed]</ref> Austrians counter by stating that such crises, although possibly less frequent, have been more severe and long-lasting ''after'' the creation of the Fed.<ref>[http://mises.org/daily/3466 ABCT]</ref> In addition even those "panics" which occurred prior to the creation of the Fed had monetary causes relating to fractional bank regulation and speculation.<ref>[http://mises.org/document/695/ Panic of 1819}</ref> Some Libertarians would also support experimentation with [[full reserve banking]],<ref>[http://mises.org/daily/4860 Money: Sound and Unsound], Mark Thornton commentary on Joseph Salerno's book</ref><ref>[http://mises.org/store/Money-Bank-Credit-and-Economic-Cycles-P290C0.aspx Money, Bank Credit and Economic Cycles], Jesus Huerta de Soto, Mises Institute ISBN: 978-1-933550-39-8</ref><ref>[http://www.mises.org/Books/mysteryofbanking.pdf Murray Rothbard, ''The Mystery of Banking'']</ref> recognizing that when fractional-reserve banking is combined with the gold standard a strong cyclical bias (and the systematic transfer of real wealth to the banking system) is normally inevitable.<ref>[http://mises.org/daily/5174/Life-with-the-Fed-Sunshine-and-Lollipops Life With The Fed], Thomas Woods</ref><ref>[http://mises.org/daily/5185/The-Need-for-100-Reserves The Need for 100% Reserves], Frank D. Graham</ref> Those Libertarians who support full reserve banking would strongly support more flexible and forgiving bankruptcy laws in a fractional reserve banking environment, recognizing that no stigma should be attached to bankruptcy given the anti-Libertarian "unjust acquisition" of real wealth implicit in central banking, compulsory legal tender laws, fractional reserve banking and taxation.<ref>[http://mises.org/daily/4860 Money: Sound and Unsound], Mark Thornton commentary on Joseph Salerno's book</ref><ref name="Repudiating the National Debt">[http://mises.org/article.aspx?Id=1423 Repudiating the National Debt], Murray Rothbard</ref><ref>[http://www.mises.org/Books/mysteryofbanking.pdf Murray Rothbard, ''The Mystery of Banking'']</ref><ref>[http://gonzalolira.blogspot.com/2010/12/want-to-ruin-your-own-country-assume.html Want to Ruin Your Country?]</ref>

In the absence of sound money, over time large private corporations become mere extensions of powerful government and banking fiat.<ref>[http://www.zerohedge.com/news/2013-04-03/david-stockman-keynesian-endgame The Keynesian Endgame], David Stockman</ref><ref name="death"/><ref>[http://mises.org/rothbard/newlibertywhole.asp For A New Liberty], Murray Rothbard</ref><ref>[http://news.goldseek.com/EuroCapital/1313178959.php The Fix is In], Peter Schiff</ref> David Stockman has stated the following:.<ref>[http://www.zerohedge.com/news/2013-04-03/david-stockman-keynesian-endgame The Keynesian Endgame], David Stockman</ref>

{{quote|It not only shows that the so-called recovery is tenuous and highly skewed to a small slice of the population at the top of the economic ladder, but also that statist economic intervention has now become wildly dysfunctional. Largely based on opulence at the top, Wall Street brays that economic recovery is under way even as the Main Street economy flounders. But when this wobbly foundation periodically reveals itself, Wall Street petulantly insists that the state unleash unlimited resources in the form of tax cuts, spending stimulus, and money printing to keep the simulacrum of recovery alive.}}

Libertarians such as Murray Rothbard argue that in such a toxic monetary environment resource allocation is perverted by some or all of the following factors: corrupt alliances between so-called "private corporations" (which are often extensions of government or banking interests) and regulators; increasingly intensive business structures to suit the needs of a concentrated and cartelized banking system; and the constant overriding of small communities and local government planning with central government directives to satisfy the needs of big business.<ref>[http://news.goldseek.com/EuroCapital/1313178959.php The Fix is In], Peter Schiff</ref><ref name="death"/> In such a corrupted monetary system, libertarians argue that financial and man-made environmental crises cannot legitimately be blamed on "private" corporations but rather blame must fall squarely on the true source of the problem - centralized government control of credit and money, which in turn dilutes private property rights (especially in relation to traditional owners and farmers) and creates massive distortions in scarce resource allocation, with financial ''and'' environmental crises being the predictable consequence.<ref name="death"/><ref>[http://mises.org/rothbard/newlibertywhole.asp For A New Liberty], Murray Rothbard</ref><ref>[http://maxkeiser.com/2011/06/11/ote114-on-the-edge-with-peter-schiff/ Peter Schiff Interview with Max Keiser]</ref><ref>[http://www.marketoracle.co.uk/Article29029.html Getting Used to Life without Food], F. William Engdahl</ref>

Regarding the current accumulation of government bonds and private debt, many Libertarians believe that the creation of the [[Federal Reserve System|Federal Reserve]] under the [[Federal Reserve Act]] of 1913 was unconstitutional and consider that at least some of this accumulated debt should be canceled or forgiven ''prior'' to a return to the gold standard in recognition of its fundamental illegitimacy.<ref>[http://www.zerohedge.com/news/guest-post-federal-debt-criminal-scam-federal-reserve-criminal-syndicate Federal Debt As Criminal Scam], Charles Hugh Smith</ref><ref>[http://www.marketoracle.co.uk/Article29433.html The Never-Ending Economic Depression], Washington Blog</ref><ref>[http://www.zerohedge.com/article/antal-feketes-open-letter-ron-paul-impeach-bernanke Antal Fekete's Letter to Ron Paul]</ref><ref name="Repudiating the National Debt"/><ref>[http://www.youtube.com/watch?v=1zMv4Offm_8&feature=player_embedded#at=1341 Max Keiser Interview with Alex Jones]</ref><ref>[http://www.zerohedge.com/news/guest-post-federal-debt-criminal-scam-federal-reserve-criminal-syndicate Federal Debt As Criminal Scam], Charles Hugh Smith</ref><ref>[http://blog.mises.org/18590/roubini-thoroughly-confused-by-austrian-economics/ Roubini Confused], Justin Ptak</ref> Arguably this would be supported by the "just acquisition" jurisprudence of legal philosopher [[Robert Nozick]] and Libertarian advocate [[Murray Rothbard]].<ref name="Repudiating the National Debt"/> As Murry Rothbard states:<ref>[http://angloaustria.blogspot.com/2010/05/quote-of-day-on-repudiation.html The Ethics of Liberty], Murray Rothbard</ref>

{{quote|Many libertarians fall into confusion on specific relations with the State, even when they concede the general immorality or criminality of State actions or interventions. Thus, there is the question of default, or more widely, repudiation of government debt. Many libertarians assert that the government is morally bound to pay its debts, and that therefore default or repudiation must be avoided. The problem here is that these libertarians are analogizing from the perfectly proper thesis that private persons or institutions should keep their contracts and pay their debts. But government has no money of its own, and payment of its debt means that the taxpayers are further coerced into paying bondholders. Such coercion can never be licit from the libertarian point of view. For not only does increased taxation mean increased coercion and aggression against private property, but the seemingly innocent bondholder appears in a very different light when we consider that the purchase of a government bond is simply making an investment in the future loot from the robbery of taxation.}}

In late 2010, financial commentator Max Keiser started the [[Buy Silver Crash JP Morgan Campaign 2010]] in an attempt to expose the flaws underlying the [[fractional reserve banking]] system.<ref>[http://www.youtube.com/watch?v=1zMv4Offm_8&feature=player_embedded#at=1341 Max Keiser Interview with Alex Jones]</ref><ref>[http://www.youtube.com/watch?v=_IKbAmsGey0&feature=player_embedded#at=66 Bob Chapman Silver Predictions]</ref><ref>[http://www.guardian.co.uk/commentisfree/2010/dec/02/jp-morgan-silver-short-selling-crash Want JP Morgan to crash? Buy silver], Max Keiser</ref>

Spontaneous protests against the Federal Reserve and the current financial system commenced in September 2011 across the United States and current protests can be found on the [http://www.occupytogether.org/ OccupyTogether.org] website.

====Free Banking and Full Reserve Banking====

On the issue of the required level of bank reserves, Austro-libertarians are sharply divided on the optimal solution to eliminate the price distorting and destructive forces inherent in fractional reserve banking.<ref>[http://www.thedailybell.com/29047/Anthony-Wile-Antal-Fekete-Gold-Backwardation-and-the-Collapse-of-the-Tacoma-Bridge Antal E Fekete]</ref><ref>[http://mises.org/journals/qjae/pdf/qjae13_4_2.pdf Fractional Reserve Free Banking: Some Quibbles], Philip Bagus and David Howden</ref><ref name="Cochran_Free">John P. Cochran. [http://mises.org/daily/4898 ''Free Banking''], ''Mises Daily'', review of ''Free Banking: Theory, History, and a Laissez-Faire Model'' by Larry Sechrest</ref><ref>[https://mises.org/journals/qjae/pdf/qjae15_2_3.pdf Against Monetary Disequilibrium Theory], Laura Davidson</ref>

Some Austrian scholars advocate "free banking", where banks are legally permitted to engage in fractional-reserve banking activities ''provided'' they comply with the standard laws against fraud and are not supported in any way against the possibility of bank runs and are forced into bankruptcy should they not be able to pay their debts as and when they fall due.<ref name="Cochran_Free" /> Provided depositors are clearly made aware that their demand deposits are being lent out and are not universally available for immediate withdrawal and provided there is no way in which such banks are propped up in the face of bank runs, free banking advocates do not support outlawing fractional reserve banking as embezzlement ''per se''.

Advocates of this system of banking include Lawrence White, Steven Horwitz, George Selgin, and Kevin Dowd, amongst others.<ref name="Cochran_Free" /> F.A. Hayek also advocated the de-nationalization of money production and implicitly supported a free banking financial system in some of his works on monetary reform.<ref>[http://www.mises.org/store/Free-Market-Monetary-System-A-P553.aspx?AFID=14 ''Free Market Money System''] by [[F.A. Hayek]]</ref>

Rothbardian-oriented Austrian scholars advocate "[[full reserve banking]]", considering fractional-reserve banking and the associated issuance of irredeemable paper money to be inherently fraudulent, unethical, unjust, disruptive and dysfunctional, akin to embezzlement and counterfeiting.<ref>[http://www.zerohedge.com/article/citizen-sues-atlanta-fed-based-allegation-its-issuing-federal-reserve-notes-it-has-no-intent Citizen Sues Atlanta Fed], ZeroHedge</ref><ref>[http://mises.org/journals/qjae/pdf/qjae13_4_2.pdf Fractional Reserve Free Banking: Some Quibbles], Philip Bagus and David Howden</ref><ref>See for example these [[Murray Rothbard]] articles: [http://www.mises.org/money.asp What Has Government Done to Our Money?], [http://www.mises.org/story/1829 The Case for the 100% Gold Dollar]; [http://www.lewrockwell.com/rothbard/cartelization.pdf The Fed as Cartel], [http://www.lewrockwell.com/rothbard/rothbard191.html Private Coinage], [http://www.lewrockwell.com/rothbard/rothbard190.html Repudiate the National Debt]; [http://www.lewrockwell.com/rothbard/rothbard181.html Taking Money Back], [http://www.lewrockwell.com/rothbard/rothbard163.html Anatomy of the Bank Run], [http://www.lewrockwell.com/rothbard/rothbard128.html Money and the Individual]</ref> [[Full reserve banking]] would require banks to retain in reserve all deposits that are legally available for immediate withdrawal, and permit lending only from longer-term deposits.

Advocates of this system of banking include [[Murray Rothbard]],<ref name="The Mystery of Banking">[http://www.mises.org/Books/mysteryofbanking.pdf ''The Mystery of Banking''], Murray Rothbard</ref><ref name="The Case for a 100% Gold Dollar">[http://mises.org/story/1829 The Case for a 100% Gold Dollar], Murray Rothbard</ref> [[Jesus Huerta de Soto]],<ref>[http://www.mises.org/books/desoto.pdf ''Money, Bank Credit, and Economic Cycles''], Jesus Huerta de Soto, First English edition (2006), pp. 98-114</ref> [[Jörg Guido Hülsmann]],<ref>[http://mises.org/media/4014 The Economics of Legal Tender Laws], and [[Jorg Guido Hulsmann]] (includes detailed commentary on [[central banking]], [[inflation]] and [[fractional reserve banking|FRB]])</ref><ref name=FBFB>[http://mises.org/journals/rae/pdf/RAE9_1_1.pdf Free Banking and the Free Bankers], Jörg Guido Hülsmann, Quarterly Journal of Austrian Economics (Vol. 9, No. 1)</ref><ref>[http://www.lewrockwell.com/lewrockwell-show/2011/01/04/181-hyperinflation-ahead/ Interview with Jörg Guido Hülsmann], The Lew Rockwell Show</ref> amongst others.<ref>[http://mises.org/journals/qjae/pdf/qjae13_4_2.pdf Fractional Reserve Free Banking: Some Quibbles], Philip Bagus and David Howden</ref><ref>[http://mises.org/daily/4880 The Faults of Fractional-Reserve Banking], Thorsten Polleit</ref>

Commentators David Stockman and Michael Shedlock also support the creation of full reserve postal savings banks that do not lend out money from checking accounts.<ref>[http://globaleconomicanalysis.blogspot.com.au/2013/04/stockman-fires-back-at-krugman-labeling.html David Stockman Fires Back At Krugman]</ref> According to Michael Shedlock:<ref>[http://globaleconomicanalysis.blogspot.com.au/2013/04/stockman-fires-back-at-krugman-labeling.html David Stockman Fires Back At Krugman]</ref>

<blockquote>And the solution is so easy too. Open a bank that charges nominal fees for checking and makes no loans. Such a bank would not need loan officers or other high-priced personnel. It would offer safekeeping of money and simple checking accounts for a fee.

Those who want interest on their money should have to take a risk, the risk of a possible loss.

Finally, and as I have pointed out before, lending of checking accounts is outright fraud. Checking accounts are supposed to be money available on demand, but since Greenspan authorized Sweeps in 1994, almost none of it is.</blockquote>

Most recently, in late 2010, two British MP's, Douglas Carswell and Steven Baker, sought to introduce legislation into the British Parliament that would allow depositors to decide if their money should be lent out and for what period.<ref>[http://www.telegraph.co.uk/finance/financetopics/financialcrisis/8004540/The-radical-reform-that-would-end-boom-and-bust-in-banking.html ''The Radical Reform in Banking''], Toby Baxendale, ''Daily Telegraph'', 15 Sept 2010</ref> If this legislative reform were to pass, British depositors would have the option to elect to save their money in full reserve bank accounts.

In early 2013, the idea of full reserve banking began to reappear in mainstream circles, after other "remedies" appeared to fail or only defer the next crisis, but not solve the banking "problem".<ref>[http://www.telegraph.co.uk/finance/comment/jeremy-warner/10107375/The-banking-revolution-that-would-wipe-out-Britains-debts.html Banking Revolution]</ref> Even some "establishment" economists such as Jeffrey Sachs has openly criticized unregulated fractional reserve banking, and called for a clear legislative division between heavily regulated and controlled liquidity-supplying high-reserve fractional reserve banking and open unprotected speculation, which would be subject to risk of bankruptcy.<ref>[http://www.youtube.com/watch?feature=player_embedded&v=7VOWnnEphjI Jeffrey Sachs audio]</ref>

Antal E. Fekete of the New Austrian School advocates return of real bills (which are self-liquidating debt) and criticizes the Rothbardian position opposing fractional reserve banking as impractical and ahistorical.<ref>[http://www.thedailybell.com/29047/Anthony-Wile-Antal-Fekete-Gold-Backwardation-and-the-Collapse-of-the-Tacoma-Bridge Antal E Fekete]</ref> He has stated:

<blockquote>The altercation between the American Austrians and the New Austrian School of Economics is a tragic waste of talent. We should settle our differences not by mud-slinging and by calling names, but through high level scientific debates... I sincerely hope that they accept and we can join forces in preparing the ground for the triumph of the gold standard after a brief reactionary period in history dominated by the regime of irredeemable currency.</blockquote>

====Market Money: Gold and Silver and Crypto-Currency====
In the absence of reform, many Austrians and libertarians are actively buying gold and silver and transferring savings to Bitcoin which cannot be created at the whim of governments.<ref>[http://goldinvestingnews.com/26510/peter-schiff-gold-money-fiat-currency-price-outlook-central-banks-investing.html Peter Schiff on Gold and Money]</ref><ref>[http://www.ronpaul.com/on-the-issues/fiat-money-inflation-federal-reserve-2/ Honest Money]</ref><ref>[http://www.lewrockwell.com/paul/paul125.html Fiat Paper Money], Ron Paul</ref><ref>[http://www.mogamboguru.com/writings.html Mogambo Guru]</ref><ref>[http://www.youtube.com/watch?v=O2rsQhsTTbE Max Keiser on Bitcoin]</ref> Many Austrians believe gold and silver and other essential commodities are ideal investments during this period of fiat money expansion and experimentation, as no government in the history of the world has ever escaped economic catastrophe and debasement of the currency after adopting a pure fiat money<ref>[http://historysquared.com/2012/06/26/fiat-currencies-trend-towards-their-intrinsic-value-often-rather-quickly/ Fiat Currencies Trend Towards Their Intrinsic Value]</ref><ref>[http://www.zerohedge.com/news/2013-04-05/guest-post-more-monetary-quackery More Monetary Quackery]</ref><ref>[http://goldinvestingnews.com/26510/peter-schiff-gold-money-fiat-currency-price-outlook-central-banks-investing.html Peter Schiff on Gold and Money]</ref><ref>[http://www.ronpaul.com/on-the-issues/fiat-money-inflation-federal-reserve-2/ Honest Money]</ref><ref>[http://www.lewrockwell.com/paul/paul125.html Fiat Paper Money], Ron Paul</ref><ref>[http://www.professorfekete.com/articles/AEFFiatMoneyInDeathThroes.pdf Fiat Money in Death Throes], Antal E Fekete</ref><ref>[http://www.professorfekete.com/articles%5CAEFAmericanBasesGermanyGoldBasis.pdf American Bases], Antal E Fekete]</ref> and keeping money in bank deposits is becoming increasingly risky as governments renege on promises to keep depositors' money safe.<ref>[http://truthingold.blogspot.com.au/2013/04/the-frightening-truth-about-cyprus-bail.html?showComment=1365106177301 The Truth About the Cyprus "Bail In"]</ref><ref>[http://www.zerohedge.com/news/2013-04-02/ron-paul-great-cyprus-bank-robbery The Great Cyprus Bank Robbery], Ron Paul</ref>

===Neo-Chartalism and Modern Monetary Theory===

Neo-Chartalists and associated advocates of Modern Monetary Theory (MMT) also accept that the current bank-dominated monetary system is dysfunctional, but advocate reform ''within'' the strictures of a fiat monetary system rather than looking to return to a commodity-based monetary system.<ref>[http://www.cnbc.com/id/45795986/Modern_Monetary_Theory_and_Austrian_Economics Modern Monetary Theory and Austrian Economics], John Carney</ref>

Most advocates of MMT support deficit spending to support the economy, believing governments can never go bankrupt in a fiat monetary system.

Austrians and sound money advocates criticize supporters of MMT not in their description of the current monetary system (which many Austrians consider reasonably accurate) but for their "shallow" understanding of the dangers of unfettered government spending through fiat money creation and their "naive" support of deficit spending and inflationary policies as an "easy" way out of economic crises.<ref>[http://www.soundmoneyproject.org/?p=4881 The Upside-Down World of MMT], Robert Murphy</ref><ref>[http://www.zerohedge.com/news/sean-corrigan-crucifies-mmt Sean Corrigan Crucifies MMT], ZeroHedge.com</ref>

===Debt-free fiat money===

The concept of debt-free money is most notably represented by [[Michael Rowbotham]], [[Stephen Zarlenga]] of the American Monetary Institute, Bill Still producer of the well-known ''[http://www.youtube.com/watch?v=JXt1cayx0hs Money Masters]'' videos and [[Ellen Hodgson Brown]].<ref>[http://www.youtube.com/watch?v=6MKjlPmVVK4 Bill Still on gold reserves]</ref> They advocate various forms of "pure" fiat money issuance by government, without the need for the government to issue a bond to print or issue the fiat money. More recently, mainstream economists have begun to seriously consider the issuance of debt-free money as a policy solution to the current ongoing crisis.<ref>[http://blogs.reuters.com/anatole-kaletsky/2013/02/07/a-breakthrough-speech-on-monetary-policy/ A Breakthrough Speech on Monetary Policy], Anatole Kaletsky</ref><ref>[http://krugman.blogs.nytimes.com/2013/01/07/be-ready-to-mint-that-coin/ Be Ready To Mint That Coin], Paul Krugman</ref><ref>[http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/9970294/Helicopter-QE-will-never-be-reversed.html Helicopter QE will never be reversed], Ambrose Evans-Pritchard</ref>

Currently virtually all money issued in modern economies is initially sourced from debt; in other words, it is "debt money" because it is created via some entity (government or business or individuals) borrowing fiat money into existence and the money being created by a bank before it is spent by the government or by a business or by an individual. "Debt money" is therefore money created in parallel with debt or [[Credit (finance)|credit]] via the process of [[fractional reserve banking]] or the issuance of a bond from the central bank.

"Debt-free money" is a "true" or "pure" fiat currency issued by the [[Treasury]] of a [[central government]], where there is no requirement for its eventual return as a condition of its creation (except by way of payment of taxes).<ref name="death"/> This can occur either through [[debt monetization]] where the central bank exchanges government bonds with fiat money or where the central bank issues money directly to the government to spend without any bonds being created in the first place. In either case, the government gets to spend pure fiat money without any need to pay interest on bonds or to pay the money back to the bank in future. It is argued by Rowbotham and others that this method of issuing new money would allow for the substantial lowering of tax rates, would allow public works projects to be funded cheaply, and would stimulate economic development, if the fiat money is spent sensibly on inflation-lowering long-term capital projects.<ref name="death"/>

[[Michael Rowbotham]] seeks the cancellation of "unjust" debts (such as [[third world debt]]), and, crucially and most importantly, a [[social security]] [[safety net]] involving a guaranteed minimum [[social credit|debt-free income]] (sourced from government-issued debt-free money independent of any central bank) for all citizens in the debt-based economy. Under this proposal, every adult citizen would be given a livable debt-free income transferred electronically into their [[bank account]], simply by virtue of their [[citizen]]ship. They could then use this debt-free money to pay off their [[mortgage]]s or to live, debt-free, without being compelled to work as a [[wage slavery|wage slave]] in the market economy if they chose not to. The government would finance these payments simply by ordering the private banks to accept their electronic instructions as legal tender. It would therefore not result in the expansion of [[government debt]].<ref name="death"/>

Ex-U.S. Treasury Department analyst Richard C. Cook also supports the issuance of debt-free money and zero-interest credit by the central government and has provided a detailed blueprint of monetary reform recommendations to transition to a debt-free money supply.<ref name="marketoracle.co.uk"/>

Some commentators have speculated that the issuance of massive amounts of debt-free pure fiat money is already happening, and we are currently living in a massive money printing experiment, as so-called "quantitative easing" will never be reversed.<ref>[http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/9970294/Helicopter-QE-will-never-be-reversed.html Helicopter QE will never be reversed], Ambrose Evans-Pritchard</ref> Ambrose Evans-Pritchard has warned:<ref>[http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/9970294/Helicopter-QE-will-never-be-reversed.html Helicopter QE will never be reversed], Ambrose Evans-Pritchard</ref>

{{quote|If Lord Turner's helicopters are ever needed, we can be sure that the Anglo-Saxons and the Japanese will steal a march, while Europe will be the last to move. The European Central Bank will resist monetary financing of deficits until the bitter end, knowing that such action risks destroying German political consent for the euro project.

By holding the line on orthodoxy, the ECB will guarantee that Euroland continues to suffer the deepest depression. Once the dirty game begins, you stand aside at your peril.

A great many readers in Britain and the US will be horrified that this helicopter debate is taking place at all, as if the QE virus is mutating into ever more deadly strains.

Bondholders across the world may suspect that Britain, the US and other deadbeat states are engineering a stealth default on sovereign debts, and they may be right in a sense. But they are warned. This is the next shoe to drop in the temples of central banking.}}

====Properties====
According to its proponents, government-issued debt-free fiat currency (such as debt-free notes and coins) can circulate perpetually in the economy as "stable" money and although not as secure as [[hard currency]], government-issued debt-free notes and coins (such as United States Notes and silver certificates) do not have the same effects of debt-based money (which require pertpetual interest payments to be tied to the creatin of new money).<ref>[http://www.entrewave.com/freebooks/docs/a_pdfs/gnhm.pdf Honest Money]</ref> It should be noted however that fiat currency can be a source of [[hyperinflation]] if its production is not controlled, as the government has the potential to issue unlimited amounts of fiat currency - ''provided'' it is accepted as "money" by the private banking system.<ref>[http://mises.org/books/shorthistorypapermoney.pdf A Short History of Paper Money in the United States], William M. Gouge, Mises Institute</ref> Notably, the Federal Reserve reportedly threatened not to recognize the trillion dollar platinum coin should the Obama Administration try to mint one.<ref>[http://www.buzzfeed.com/zekejmiller/the-trillion-dollar-coin-was-killed-by-the-fed Trillion Dollar Coin Killed By Fed]</ref><ref>[http://webofdebt.wordpress.com/2013/01/18/the-trillion-dollar-coin-joke-or-game-changer/#more-5323 The Trillion Dollar Coin], Ellen Hodgson Brown</ref> Debt-free notes and coins in circulation (being defined as [[Money supply#M0|M0]]) now account for a tiny fraction of the total debt-based M3 [[money supply]] in all modern debt-based economies (and debt-free M0 is also generally less than 10% of the total [[Money supply#M2|M2]] money supply in most developed economies).<ref>[http://www.dollardaze.org/blog/?post_id=00216 Global Money Supply Ratios]</ref>

Instead of [[money]] being created "indirectly" and "furtively" at the point of loan creation by the private banking system, with periodic bailouts to already-rich bankers and a "boomerang" boom-bust cycle as debt levels expand and contract, this debt-free "pure fiat" money would be created directly and openly by the democratically elected government and permanently issued to its citizenry by way of instruction to the private banking system. An example would be the coining of a trillion dollar platinum coin by the US government to pay off some of the Federal debt and continue its deficit spending in times of recession or depression. There would be no requirement for this money to returned (plus interest) and be extinguished as a condition of its creation, which is the central feature of all debt money systems.

Michael Rowbotham argues that this system of "debt-free" money issuance would not dramatically raise consumer prices (or at least would not be as inflationary or as dysfunctional as the current compounding debt-based system). He argues that this would also reduce overconsumption and the associated environmental damage associated with debt-based consumerism. It would also give individuals the free time to engage once again in non-marketable religious, artistic and recreational activities if they chose to do so.<ref name="death"/>

It is acknowledged that, in the absence of tax rates which ensure the return of this "pure" fiat to government coffers, this would be "inflationary" in the traditional sense, but proponents of debt-free fiat money issuance argue that if this "pure" government spending is directed to capital works projects and other long-term projects, this "pure" fiat money issuance would not result in excess price inflation, although it would dramatically increase base money. Michael Rowbotham argues that if bank reserve and capital ratios were increased and bank regulations on derivatives were imposed ''at the same time'' as the increase in "pure" base money was occurring, the two policies would balance each other out and no appreciable price inflation would be felt by the public at large.<ref name="death"/> The increase in base money would be inflationary, but the increase in reserve requirements would be deflationary, resulting in no significant net increase in the total money supply (assuming the government was sufficiently skilled in balancing these forces through the transition to a predominantly debt-free monetary system).

It is to be expected that these policies would be violently opposed by the private banking "elite", as it would render impotent their control over the money supply, dissipating this crucial decision-making power away from its current power base, from private banks to elected governments.<ref>[http://www.thenewamerican.com/economy/economics/item/14238-obama%E2%80%99s-trillion-dollar-coin-exposes-federal-reserve-scam Obama’s Trillion-Dollar Coin Exposes Federal Reserve Scam], Alex Newman, ''New American''</ref><ref>[http://webofdebt.wordpress.com/2013/01/18/the-trillion-dollar-coin-joke-or-game-changer/#more-5323 The Trillion Dollar Coin], Ellen Hodgson Brown</ref> It would also be likely to reduce [[economic growth]], dramatically increase the cost of labor and, potentially, result in an exacerbation of price inflation and malinvestment.<ref>[http://globaleconomicanalysis.blogspot.com/2010/12/fatally-flawed-end-fed-proposal-from.html Fatally Flawed End the Fed Proposal], MISH</ref> However, Rowbotham, Zarlenga and Still all argue that this proposal would address the problem of inequality inherent in a debt-based monetary system and reduce the devastating impact of personal [[bankruptcy]] and allow individual citizens to quickly recover from financial hardship.<ref name="death"/> They also argue that this social security measure (and government spending in general) would not have to be paid for by future generations from future streams of [[income tax]].<ref name="death"/>

====Criticism of "Greenbacker" debt-free money issuance====
In late 2010, [[Ellen Hodgson Brown]] and Austrian School commentator [[Gary North]] engaged in an intense debate over the direction of [[monetary reform]], with gold-standard supporter [[Gary North]] accusing Brown of going down a path that inevitably leads to the economics of fascism and hyperinflation.<ref>[http://www.lewrockwell.com/north/north908.html Criticism of Ellen Hodgson Brown]</ref><ref>[http://www.lewrockwell.com/north/north912.html Ellen Betrays], Gary North</ref> Government deficit spending funded with either paper money or compliant public bank lending is not a substitute for private consumption due to the inability of coercive goverment to invest rationally long-term, given the [[economic calculation problem]] inherent in socialized economies and the interests of governments and politicians being very different from the average consumer.<ref>[http://dailyreckoning.com/downside-after-the-returns-stop-diminishing-part-ii/ Nazi Germany], Bill Bonner</ref> North argues that it is not possible to trust a coercive, non-market entity - government - to limit its spending in circumstances where pure fiat money is in the hands of politicians and that [[inflation]], being an invisible tax, is much harder to resist than regular taxes. Greedy, corrupt, short-sighted politicians could buy off special interest groups to get elected and the general public could only watch on the sidelines as the purchasing power of their dollars steadily declines; this decline would be blamed on currency speculators and eventually foreign currencies (including "natural" monies such as gold and silver and copper) would have to be banned and confiscated from the public to ensure continued use of depreciating fiat.<ref name="North_Congress">Gary North. [http://www.garynorth.com/public/7030.cfm "Economic Error #15: Congress Can Safely Be Trusted to Manage the Money System Without Any Price Inflation."]. Referenced 2011-02-24.</ref> The fundamental error of Brown's analysis, according to North, is that Brown expects the source of the problem - corrupt governments bought and paid for by bankers - to be the source of the solution. She calls for a move away from war spending, whilst recoginizing that the current fiat monetary system favors government spending on war.<ref>[http://www.marketoracle.co.uk/Article28831.html More Efficient Ways to Stimulate Economy], Ellen Hodgson Brown</ref> To date, she has yet to reconcile these inconsistencies in her writings.

[[Mike Shedlock]] agrees with the abolition of fractional reserve banking, but criticizes the concept on similar grounds as North. Commenting on a bill to end the Fed introduced by Representative [[Dennis Kucinich]], he wrote: "Neither sound money nor the free market comes from printing money into existence. Arguably the only thing worse than the Fed printing money out of thin air is Congress printing money out of thin air for the purpose of full employment and/or any other absurd ideas Congress has."<ref>[http://www.marketoracle.co.uk/Article25175.html Kucinich's End the Fed campaign fatally flawed], Mike Shedlock.</ref>

Peter Schiff also believes getting rid of the Fed and returning money issuance to Congress would be worse than the current system.<ref>[http://www.youtube.com/watch?v=kEDmj3qocag Doug Casey Interview with Peter Schiff]</ref>

Austrians criticize leftists' inability to see that printing money and government spending is not the same as voluntary spending by private individuals as government spending distorts the capital structure; does not result in lasting economic growth due to the [[economic calculation problem]]; and is not subject to normal cautious profit and loss considerations given that the government can continually recover from errors by simply printing the money it spends.<ref>[http://www.marketoracle.co.uk/Article28831.html More Efficient Ways to Stimulate Economy], Ellen Hodgson Brown</ref><ref>[http://www.youtube.com/watch?v=qDKvSMZNgjc Peter Schiff Rips Paul Krugman]</ref> They also avoid or ignore the fact that historically governments have often acted in their own self-interest and concentrated power in themselves and their corrupt associates and families rather than benignly ruling for the benefit of the populace and their long-term interests. Every sovereign - without exception - that has been given the unfettered power to print fiat money has eventually printed too much debt-free money and in the end had to ban competing currencies (such as foreign currency or metallic money), and face revolt, revolution, hyperinflation or other social catastrophe.<ref>[http://www.marketoracle.co.uk/Article39762.html Fiat Currency Collapse]</ref>

====Debt-free money issuance: Support from free market Austrians====
In contrast to Gary North's attacks on "Greenbacker" Ellen Hodgson Brown, and Mike Shedlock's criticism of debt-free money printing by Congress as the worst of all choices, noted Austrian monetary economist Joseph Salerno has voiced his support for the idea of debt-free money issuance ''in comparison to the current debt-based system'', if a choice is to be made between the two.<ref>[http://www.mises.org/daily/6350/The-Flipside-of-the-Trillion-Dollar-Coin The Flipside of the Trillion Dollar Coin]</ref> In his defense of the trillion dollar coin idea, he states the following:<ref>[http://www.mises.org/daily/6350/The-Flipside-of-the-Trillion-Dollar-Coin The Flipside of the Trillion Dollar Coin]</ref>

{{quote|Let me be clear: my intention is not to deny that the trillion-dollar coin is a ludicrous and dangerous idea; it is rather to point out that the Fed is a more ludicrous and dangerous idea.}}

In relation to the "dangers" of Congressional control of the money supply, Salerno responds as follows:<ref>[http://www.mises.org/daily/6350/The-Flipside-of-the-Trillion-Dollar-Coin The Flipside of the Trillion Dollar Coin]</ref>

{{quote|Obviously, congressional control of the fiat money supply is far from the ideal monetary system, which involves the complete separation of government and money through the establishment of a commodity money, such as gold, the supply of which is determined exclusively by market forces. Nonetheless, there is much merit in replacing the opaque and pseudo-scientific control of "the money supply process" by the entrenched bureaucrats of the Fed with overtly political control of money by elected officials and partisan Administration appointees.}}

Salerno outlines a number of advantages of "simple inflation" over the current debt-based round-about system of money creation:<ref>[http://bastiat.mises.org/2013/05/bring-on-the-helicopter-money-and-gut-the-fed/ Bring on the Helicopter Money - and Gut the Fed], Joseph Salerno</ref>

{{quote|...as a permanent policy, it would be a wonderful device for wresting control of monetary policy from un-elected, secretive, and pseudo-scientific Fed bureaucrats and placing it under a Congress subject to popular scrutiny and elections. Of course this would not be an ideal system, which would be a hard money consisting of a market supplied commodity like gold. But it would have a number of significant advantages over the present Fed-dominated system. First, as just noted, money creation by Congress would be far more transparent and understandable to the public than the arcane procedures by which the Fed expands the money supply. Second, the injection of new money directly into the economy via government purchases of goods and services would avoid the continual and systematic distortion of financial markets and the interest rate currently caused by Fed open market operations. This process of “simple inflation” as Mises called it would, therefore, certainly produce rising prices but would not generate business cycles of recurring booms and busts. Finally, the Fed could no longer operate as a bailer-outer of last resort, surreptitiously bailing out gigantic domestic and foreign financial institutions in the absence of discussion and consent by Congress and the knowledge of the public.}}

===Public Fractional Reserve Banks===

[[Ellen Hodgson Brown]] supports nationalization of the private banking system once the full losses on the banks' portfolios are recognized.<ref>[http://www.huffingtonpost.com/ellen-brown/restoring-economic-sovere_b_823697.html Restoring Economic Sovereignty], Ellen Hodgson Brown</ref><ref>[http://www.webofdebt.com/articles/new_theory.php Time for a New Theory of Money]</ref><ref>[http://globaleconomicanalysis.blogspot.com/2011/01/steve-keen-responds-to-world-economic.html Exponential Growth], MISH</ref><ref>[http://www.webofdebt.com/articles/force_nationalization.php Foreclosuregate could force bank nationalization]</ref><ref>[http://webofdebt.wordpress.com/2010/12/22/austerity-fails-in-euroland-time-for-some-%e2%80%9cdeficit-easing%e2%80%9d/ Austerity Fails in Europe], Ellen Hodgson Brown</ref> Ellen Hodgson Brown has repeatedly called for the creation of publicly-owned banks similar to the North Dakota model, where the interest earned by these state government-owned banks could be ploughed back into local economies financing public works and local government services instead of being sucked out of local communities into the major commercial banks.<ref>[http://www.marketoracle.co.uk/Article29338.html Why Aren't Banks Lending], Ellen Hodgson Brown</ref> <ref>[http://www.marketoracle.co.uk/Article39053.html Why Bankers Rule the World]</ref> She has cited numerous historical examples where public banks worked successfully for many decades, including in Australia and Costa Rica, as examples of the viability and benefit of public fractional reserve banks.<ref>[http://www.webofdebt.com/articles/commonwealth_bank_aus.php CBA]</ref><ref>[http://www.truthdig.com/report/item/public_banking_in_costa_rica_a_remarkable_little-known_model_20131111 Costa Rica]</ref>

Brown also supported "[[Quantitative easing|QE2]]" - which she described as a necessary and desirable funding of government spending via money printing rather than by the indirect means of issuing of interest-bearing government bonds, which simply allows private bankers to profit from costless money creation.<ref>[http://www.marketoracle.co.uk/Article24443.html QE2 and the Looming Threat of a Crippling Debt Service]</ref><ref>[http://www.marketoracle.co.uk/Article24719.html QE2 and Hyperinflation], Ellen Hodgson Brown</ref>

Many monetary reformers who call on the government to take back the money creation function from debt-supplying private for-profit banks also call for full reserve banking to remove the bank's alleged "embezzlement" and "counterfeiting" abilities.<ref>[http://www.thenewamerican.com/economy/economics/item/14238-obama%E2%80%99s-trillion-dollar-coin-exposes-federal-reserve-scam Obama’s Trillion-Dollar Coin Exposes Federal Reserve Scam], Alex Newman, ''New American''</ref><ref name="marketoracle.co.uk"/><ref>[http://www.monetary.org/ AMI website, calling on full-reserve banking]</ref>

It should be noted that if Austrian claims that [[fractional reserve banking]] produces [[Austrian business cycle theory|business cycles]] is correct, public ownership of banks will not stop periodic economic crises and business cycles from occurring, ''unless'' strong controls and very high reserve ratios are imposed on all banks. Many would consider this "solution" of publicly-owned fractional reserve banks merely perpetuating the problem.

Stephen Zarlenga's AMI organization has strongly criticized Brown's support of fractional reserve banking as perpetuating the very problems she seeks to solve. Jamie Walton, from the AMI, wrote the following review:<ref>[http://www.monetary.org/review-of-ellen-browns-the-web-of-debt/2010/12/ Review of Web of Debt], Jamie Walton</ref>

{{quote|Brown’s plan to takeover (rescue?) the big banks to continue a “fraud” within the safety of government is totally wrong. Placing the “fraud” in government doesn’t make it right, but might make it harder to stop. Does Brown realize that her statements and conclusions are inconsistent, and that what she proposes leads to exactly the same things that she’s claiming to be opposed to?

Experience shows that if the issue of money is unduly affected by commercial incentives, then, over time, “commercial loans” (i.e., debt) will dominate over more direct methods of issue. So we’d be kept in exactly the same position we’re in now: within a totally unnecessary, ever-growing and impossible-to-pay debt trap.

Obviously the sensible action to take is to remove the “fraud” and debt and retain a healthy and competitive banking sector. This is easily done with a law based on the existing provisions in the U.S. Constitution.

But Brown avoids this obvious solution and instead advocates that our government gets into banking.

It seems incredible that Brown is now advocating what she’s described throughout most of the book as fraud, counterfeiting and Ponzi, pyramid or ‘smoke-and-mirrors’ schemes. Why? Perhaps the answer lies in Brown’s apparent confusion and/or fundamental misunderstandings about the nature of money and the role of government in society, and about monetary history and monetary reform.}}

===Left-leaning ideas===
The highly successful "Icelandic Solution" of debt relief for the poor and criminal sanctions against corrupt bankers was implemented by a left-wing government<ref>[http://www.zerohedge.com/news/2013-01-26/only-3-minutes-worth-listening-davos Interview with Iceland's President Olafur Ragnar Grimson]</ref> although some question whether the policies truly reflected left-wing ideas given the constraints on Icelandic policy-making at the time.<ref>[http://reason.com/blog/2012/04/17/why-iceland-presidents-left-wing-critiqu Why Iceland President Left-Wing Critique is Right], ''Reason''</ref>

Some left-leaning [[social democrats]] would also support additional longer-term measures such as ''raising'' minimum wages immediately after a financial crisis (rather than reducing wage rates - which they argue only prolongs the depression through reduced spending), taxing the banking system and the implementation of strongly redistributive income and [[land tax]]es to ensure the financially dispossessed are "replenished" with income. They would also support a [[social security]] [[safety net]] involving the provision of unemployment benefits and government-supplied free medical care, education and other essential services and [[public goods]].<ref>[http://www.youtube.com/watch?v=g4yVhxDTom0 Steve Keen interview with Max Keiser]</ref> It is to be expected however that this coercive regulatory regime would result in the systematic destruction of the entrepreneurial class as profits are squeezed by rising costs. In addition, without the issuance of debt-free [[fiat currency]] the result of these programs would be the persistent, exponential, accumulation of [[government debt]], financed by the [[private banking]] system by the issuance of [[government bonds]]. If not properly managed, this could result in a progressively higher tax burden and may result in higher [[interest rates]] in the long term, as financiers require higher [[interest rates]] to lend to the increasingly indebted central government. Without the issuance of [[debt-free money]] these policies can be self-defeating, with the net result simply being that a larger stream of guaranteed income goes to the [[private bank]]ing system via the issuance of interest-bearing [[government bonds]] (which are purchased by the [[private banks]] "out of nothing" through [[fractional reserve banking]] techniques). This [[government debt]] must then be financed in perpetuity by compulsorily acquired [[tax]]es from future generations.

It could be argued that the early success of extreme so-called "right-wing" (but socialist government-guided) [[fascism]] in [[Nazi Germany]] and [[Italy]] in the period after [[World War I]] was a response to the economic chaos created by the debt-based monetary system in early 20th century [[Europe]]. Some of the economic policies introduced by [[Hitler]] and [[Mussolini]] were in direct response to the economic collapse and social [[anarchy]] caused by soaring government and personal debt levels in both countries in the post-[[Versailles Treaty]] era, and (indirectly) arose from the writings of [[Silvio Gesell]] and others on the nature of the problems associated with a debt-based [[monetary system]]. Although many [[historian]]s justifiably criticize many of the non-economic policies of the [[fascist]] governments of [[Germany]] and [[Italy]] during this period, the [[economics of fascism]] seemed to provide a degree of [[prosperity]] to the populace, and arguably achieved the government's stated objective of restoring economic and social order during the pre-[[World War II]] era.<ref>[http://www.webofdebt.com/articles/bankrupt-germany.php How a Bankrupt Germany Solved its Economic Problems], Ellen Hodgson Brown</ref> These economic policies and their results are the subject of vigorous debate even today.<ref name="North_National_Great">Gary North. [http://www.garynorth.com/public/7009.cfm "Historical Error #27: Hitler's National Socialist Economic Policies Ended the Great Depression in Germany."], ''GaryNorth.Com''. Referenced 2011-02-24.</ref> (See also [[Inflation in Nazi Germany]].)

Similarly it could be argued that [[socialism]] and [[communism]] were movements inspired by the inequalities caused by the intense (and in [[Karl Marx]]'s view unsustainable) concentrations of monetary wealth, power and influence inherent in the practice of [[fractional reserve banking]] in a [[laissez-faire]], [[monopoly]] [[capitalist]] environment (particularly when [[fractional reserve banking]] is combined with a [[gold standard]] or other [[hard currency]] [[monetary system]]).<ref>[http://www.zerohedge.com/news/2013-11-07/marc-faber-warns-karl-marx-was-right Karl Marx Was Right], Marc Faber</ref><ref>[http://www.nakedcapitalism.com/2009/02/steve-keen-roving-cavaliers-of-credit.html ''Roving Cavaliers of Credit'', Steve Keen, with commentary from Yves Smith at Naked Capitalism]</ref>

The [[communist]]/[[socialist]] solution to the problem of [[fractional reserve banking]] is simple: re-enfranchising workers through widespread organization and unionism, complete removal (and if necessary, violent non-democratic removal) of the allegedly "parasitic" financial, capitalist and upper classes, wholesale repudiation of [[government debt]] resulting in complete debt [[default]]; forced [[expropriation]] of [[land]] and wealth from the [[upper classes]] to the dispossessed and needy [[working classes]]; [[nationalization]] of the [[private banks]] (which has required armed [[coup]]s by the [[military]] in some past [[revolution]]s); and the return of the banking function from a dominant, speculative to a subordinate, administrative institution, where the banking system is reduced to a subservient arm of the centralized [[Leviathan]].<ref>[http://www.zerohedge.com/news/2013-11-07/marc-faber-warns-karl-marx-was-right Karl Marx Was Right], Marc Faber</ref> In this system, government-owned banks are directed by government policy; often provide different kinds of loans to different industry sectors at different interest rates depending on the perceived "needs" of the economy and the community; normally have a significant proportion of [[non-performing loan]]s due to weak or non-existent [[bankruptcy]] laws; and periodically "forgive" failed debts in recognition of the impossibility of some businesses in paying this debt money back. In addition, individuals are prohibited from possessing large property holdings, in excess of their individual needs.

It is to be expected that the [[profitability]] of the government-owned banking system would be more stable - but dramatically lower - than that in a debt-based [[capitalist]] economy. It is also to be expected that a significantly higher misallocation of resources could occur in this system, where lending decisions are "infected" by political considerations and are not made on the basis of expected [[return on investment]]. The risk of [[corruption]] in the banking system is also expected to be higher where there is no separation between the political and monetary systems in an economy. Market-oriented [[monetary reform]]ers and [[neo-classical]] economists therefore do not support [[nationalization]] of the [[private banking]] system.

It should be noted that partial [[nationalization]] of the [[private bank]]ing system would only be temporary, as any remaining [[private banks]] could still engage in unlimited [[fractional reserve banking]] and facilitate the eventual acquisition and control of any strategic assets in a partially socialized economic system. It is to be expected that in the absence of complete [[nationalization]] of the banking system, the [[private bank]]ing system would eventually dominate the financial system in any nominally [[socialist]] society.

==Corporatism, Crony Capitalism and Confiscation==
Assuming current trends continue, "Corporatism",<ref>[http://www.lewrockwell.com/2010/04/ron-paul/dont-call-obama-a-socialist/ Corporatism], Lew Rockwell</ref> "Rigged Market Capitalism",<ref>[http://maxkeiser.com/tag/rigged-market-capitalism/ Rigged Market Capitalism]</ref> or so-called "Crony Capitalism"<ref>[http://mises.org/daily/6540/The-American-Economy-is-Not-a-FreeMarket-Economy Crony Capitalism in America]</ref><ref>[http://www.zerohedge.com/news/2013-02-10/guest-post-note-fed-giving-banks-free-money-wont-make-us-hire-more-workers Note To Fed]</ref> will continue.<ref>[http://www.youtube.com/watch?v=zbQq33iTsrw Rigged bank rates]</ref> This means superficial respect for property rights but periodic confiscation when deemed necessary by a government-banker cabal who consider themselves above [[natural law]].<ref>[http://www.zerohedge.com/news/2013-09-18/why-obama-allowed-bailouts-without-indictments Why Obama Allowed Bailouts]</ref> This implies ongoing "immunity" for market manipulating banks on the basis that they are "too big to jail",<ref>[http://moneymorning.com/2012/12/28/too-big-to-jail-its-a-dark-day-for-the-rule-of-law/ Too Big To Jail]</ref><ref>[http://www.rollingstone.com/politics/news/gangster-bankers-too-big-to-jail-20130214 Gangser Bankers: Too Big to Jail], Matt Taibbi. Extract: 'At HSBC, the bank did more than avert its eyes to a few shady transactions. It repeatedly defied government orders as it made a conscious, years-long effort to completely stop discriminating between illegitimate and legitimate money. And when it somehow talked the U.S. government into crafting a settlement over these offenses with the lunatic aim of preserving the bank's license, it succeeded, finally, in making crime mainstream. UBS, meanwhile, was a similarly elemental case, in which the offenses didn't just violate the letter of the law – they threatened the integrity of the competitive system. If you're going to let hundreds of boozed-up bankers spend every morning sending goofball e-mails to each other, giving each other superhero nicknames while they rigged the cost of money (spelling-challenged UBS traders dubbed themselves, among other things, "captain caos," the "three muscateers" and "Superman"), you might as well give up on capitalism entirely and just declare the 16 biggest banks in the world the International Bureau of Prices. Thus, in the space of just a few weeks, regulators in Britain and America teamed up to declare near-total surrender to both crime and monopoly. This was more than a couple of cases of letting rich guys walk. These were major policy decisions that will reverberate for the next generation. Even worse than the actual settlements was the explanation Breuer offered for them. "In the world today of large institutions, where much of the financial world is based on confidence," he said, "a right resolution is to ensure that counter-parties don't flee an institution, that jobs are not lost, that there's not some world economic event that's disproportionate to the resolution we want." In other words, Breuer is saying the banks have us by the balls, that the social cost of putting their executives in jail might end up being larger than the cost of letting them get away with, well, anything. This is bullshit, and exactly the opposite of the truth, but it's what our current government believes. From JonBenet to O.J. to Robert Blake, Americans have long understood that the rich get good lawyers and get off, while the poor suck eggs and do time. But this is something different. This is the government admitting to being afraid to prosecute the very powerful – something it never did even in the heydays of Al Capone or Pablo Escobar, something it didn't do even with Richard Nixon. And when you admit that some people are too important to prosecute, it's just a few short steps to the obvious corollary – that everybody else is unimportant enough to jail. An arrestable class and an unarrestable class. We always suspected it, now it's admitted.'</ref> and the continued collusion of central banks with private banks to manipulate an increasing number of financial and commodity markets in a futile effort to control capitalism for their own survival, eventually destroying any semblance of functioning capitalism resulting in an increasingly volatile financial system.<ref>[http://www.zerohedge.com/news/2013-04-26/illuminati-were-amateurs-matt-taibbi-explains-how-everything-rigged The Illuminati Were Amateurs], Matt Taibbi. Extract: "Conspiracy theorists of the world, believers in the hidden hands of the Rothschilds and the Masons and the Illuminati, we skeptics owe you an apology. You were right. The players may be a little different, but your basic premise is correct: The world is a rigged game. We found this out in recent months, when a series of related corruption stories spilled out of the financial sector, suggesting the world's largest banks may be fixing the prices of, well, just about everything."</ref><ref>[http://www.youtube.com/watch?v=zbQq33iTsrw Rigged bank rates]</ref> Some believe we have already reached this point where world financial markets are completely artificial and prices in many markets no longer reflect reality.<ref>[http://www.youtube.com/watch?v=zbQq33iTsrw Rigged bank rates]</ref><ref>[http://www.gata.org/node/7096 Fed's blueprint for market manipulation]</ref> Even former Fed officials now admit QE simply involves newly created money being gifted to large Wall Street banks at the expense of the general population.<ref>[http://www.zerohedge.com/news/2013-11-12/former-fed-quantitative-easer-confesses-aplogizes-i-can-only-say-im-sorry-America I am sorry America]. Quote: 'In its almost 100-year history, the Fed had never bought one mortgage bond. Now my program was buying so many each day through active, unscripted trading that we constantly risked driving bond prices too high and crashing global confidence in key financial markets. We were working feverishly to preserve the impression that the Fed knew what it was doing... Trading for the first round of QE ended on March 31, 2010. The final results confirmed that, while there had been only trivial relief for Main Street, the U.S. central bank's bond purchases had been an absolute coup for Wall Street. The banks hadn't just benefited from the lower cost of making loans. They'd also enjoyed huge capital gains on the rising values of their securities holdings and fat commissions from brokering most of the Fed's QE transactions. Wall Street had experienced its most profitable year ever in 2009, and 2010 was starting off in much the same way. You'd think the Fed would have finally stopped to question the wisdom of QE. Think again. Only a few months later—after a 14% drop in the U.S. stock market and renewed weakening in the banking sector—the Fed announced a new round of bond buying: QE2. Germany's finance minister, Wolfgang Schäuble, immediately called the decision "clueless." That was when I realized the Fed had lost any remaining ability to think independently from Wall Street. Demoralized, I returned to the private sector. Where are we today? The Fed keeps buying roughly $85 billion in bonds a month, chronically delaying so much as a minor QE taper. Over five years, its bond purchases have come to more than $4 trillion. Amazingly, in a supposedly free-market nation, QE has become the largest financial-markets intervention by any government in world history.'</ref> Ongoing purchases of government bonds by central banks continue every month, keeping interest rates artificially low and allowing government spending to continue to expand, along with a volatile heavily indebted private economy.<ref>[http://www.youtube.com/watch?v=G1l7DY8kdz0 The Fed Unspun]</ref> If these "emergency" QE measures continue indefinitely this will eventually result in indefinite depression as markets are manipulated beyond the control even of the central banks, prohibiting market "clearing" and prohibiting the reallocation of resources away from the government and financial sectors.<ref>[http://prudentbear.com/index.php/guestcommentaryview?art_id=10742 Bernanke's Balance Sheet Ensures Disaster], Michael Pento</ref><ref>[http://www.zerohedge.com/news/2013-01-26/only-3-minutes-worth-listening-davos Interview with Iceland's President Olafur Ragnar Grimson]</ref><ref>[http://www.zerohedge.com/news/2013-02-06/guest-post-all-well All Is Well], Jim Quinn</ref><ref>[http://www.youtube.com/watch?v=zbQq33iTsrw Rigged bank rates]</ref> Recent events in Cyprus and Greece are an indication of what will happen in other countries should the current system continue - periodic financial crises and bank runs from capital controls on marginal economies resulting in impoverishment of the general populace.<ref>[http://www.marketoracle.co.uk/Article39809.html Greece vs Iceland]</ref><ref>[http://www.zerohedge.com/news/2013-03-22/ecb-set-fair-cypriot-standard-living-capital-controls Capital Controls]</ref> Without debt relief, "following the rules" of debt will mean that the government will have to steal simply to pay back creditors.<ref>[http://www.marketoracle.co.uk/Article39732.html Cyprus Wealth Confiscation Scheme]</ref> Ultimately, with a compliant populace, bankers and governments will periodically, without warning, "steal", "tax" or otherwise confiscate deposits, savings and wealth to keep the financial system alive, whilst continuing to try grow the money supply through fractional reserve banking.<ref>[http://www.zerohedge.com/news/2013-03-22/ecb-set-fair-cypriot-standard-living-capital-controls Capital Controls]</ref>
Without reform or revolution, this perverted Keynesian<ref>[http://mises.org/journals/fm/January2013.pdf Two Sides of the Same Debased Coin], Hunter Lewis</ref> "upside down" combination of "socialism for the rich and capitalism for the poor" will inevitably result in chronic cascading "supply" crises in commodity markets as price signals no longer "work" due to market manipulation and price "smoothing" stifling price rises that must occur for production of essential commodities to remain profitable, thereby ultimately resulting in actual supply and demand mismatches in many essential commodity markets (such as the gold and silver markets).<ref>[http://www.marketoracle.co.uk/Article38893.html Shock Year 2013]</ref><ref>[http://www.zerohedge.com/news/2013-02-09/guest-post-us-economy-now-dangerously-detached-reality US Economy Detached From Reality]</ref> This will ultimately produce a tiny (but massively wealthy) speculative banker class,<ref>[http://www.zerohedge.com/news/2013-04-03/david-stockman-keynesian-endgame The Keynesian Endgame], David Stockman</ref><ref>[http://www.zerohedge.com/news/2013-02-06/guest-post-all-well All Is Well], Jim Quinn</ref> a bloated and ineffective government sector, a private sector that mainly services lucrative government contracts (or is otherwise starved of capital and funding) and the complete destruction of the middle class, resulting in a steadily increasing disenfranchised, desperate, intergenerational underclass.<ref>[http://www.zerohedge.com/news/2013-06-17/rotting-decaying-and-bankrupt-%E2%80%93-if-you-want-see-future-america-just-look-Detroit America's Future is Detroit]</ref><ref>[http://www.zerohedge.com/news/2013-02-06/guest-post-all-well All Is Well], Jim Quinn</ref><ref>[http://www.globalresearch.ca/western-civilization-and-the-economic-crisis-the-impoverishment-of-the-middle-class/18386 Western Civilization and the Economic Crisis]</ref><ref>[http://www.youtube.com/watch?v=DVxyGxEcMqQ Max Keiser on the UK Economy]</ref><ref>[http://mises.org/journals/fm/January2013.pdf Two Sides of the Same Debased Coin], Hunter Lewis</ref><ref>[http://www.youtube.com/watch?v=zbQq33iTsrw Rigged bank rates]</ref><ref>[http://www.zerohedge.com/news/2013-04-03/david-stockman-keynesian-endgame The Keynesian Endgame], David Stockman</ref><ref>[http://www.marketoracle.co.uk/Article39449.html An Orwellian America], Gordon T Long</ref>

David Stockman has the following comments in relation to the current monetary system:<ref>[http://mises.org/daily/6397/The-Keynesian-Endgame The Keynesian Endgame]</ref>

<blockquote>Accordingly, the central banking branch of the state remains hostage to Wall Street speculators who threaten a hissy fit sell-off unless they are juiced again and again. Monetary policy has thus become an engine of reverse Robin Hood redistribution; it flails about implementing quasi-Keynesian demand–pumping theories that punish Main Street savers, workers, and businessmen while creating endless opportunities, as shown below, for speculative gain in the Wall Street casino.

At the same time, Keynesian economists of both parties urged prompt fiscal action, and the elected politicians obligingly piled on with budget-busting tax cuts and spending initiatives. The United States thus became fiscally ungovernable. Washington has been afraid to disturb a purported economic recovery that is not real or sustainable, and therefore has continued to borrow and spend to keep the macroeconomic “prints” inching upward. In the long run this will bury the nation in debt, but in the near term it has been sufficient to keep the stock averages rising and the harvest of speculative winnings flowing to the top 1 percent.

The breakdown of sound money has now finally generated a cruel endgame. The fiscal and central banking branches of the state have endlessly bludgeoned the free market, eviscerating its capacity to generate wealth and growth. This growing economic failure, in turn, generates political demands for state action to stimulate recovery and jobs.

But the machinery of the state has been hijacked by the various Keynesian doctrines of demand stimulus, tax cutting, and money printing. These are all variations of buy now and pay later—a dangerous maneuver when the state has run out of balance sheet runway in both its fiscal and monetary branches. Nevertheless, these futile stimulus actions are demanded and promoted by the crony capitalist lobbies which slipstream on whatever dispensations as can be mustered. At the end of the day, the state labors mightily, yet only produces recovery for the 1 percent.</blockquote>

Paul Krugman has criticized David Stockman's analysis of rising debt levels.<ref>[http://krugman.blogs.nytimes.com/2013/04/03/debt-and-david-stockman/ Debt and David Stockman]</ref> Others have criticized Paul Krugman's analysis.<ref>[http://lewrockwell.com/anderson/anderson362.html Should Government Try to Extend Booms Indefinitely?]</ref> Paul Krugman's argument (essentially) is that debt does not matter because we (mostly) owe it to ourselves, but he never advocates repudiation or cancellation of the debt on the same basis.

==Status under current systems==
Whatever their political leanings, nearly all [[monetary reform]]ers agree that the current financial and economic system imposed on the populace by governments worldwide, involving coercive legal tender laws,<ref>[http://lewrockwell.com/paul/paul766.html Legalize Currency Competition], Ron Paul</ref> the perpetuation of government-protected private banks (organizations legally permitted to engage in unlimited and inherently speculative fractional-reserve banking activities during boom times, with recourse to monopoly central banks - and in some cases corrupt governments<ref>[http://www.prudentbear.com/index.php/thebearslairview?art_id=10513 The Evils of Crony Capitalism], Martin Hutchinson</ref><ref>[http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100008812/irelands-debt-servitude/ Ireland's Debt Servitude], Ambrose Evans-Pritchard, UK Telegraph</ref> - to provide bail outs of fiat money during downturns), "deregulated" labor markets (which have the effect of increasing the marketization and commodification of human activity), strictly enforced bankruptcy laws (which permit the periodic transfer of assets from failed bankrupt investors caught at the end of "Ponzi-scheme" cycles to the private banks and their associates) and personal income tax (which, combined with periodic economic collapses, dispossesses the majority of the populace from their accumulated income and wealth and transfers this wealth to the owners of illicit government bonds) amounts to an inherently unstable, unjust and dysfunctional financial system resulting in environmentally damaging over-consumption and massive worldwide [[malinvestment]]s,<ref>[http://www.mises.org/daily/6578/Central-Banks-The-True-Centers-of-Political-Power Central Banks]</ref> the systematic and irredeemable destruction of fertile arable land,<ref>[http://www.huffingtonpost.co.uk/2011/09/27/natural-resources-being-e_n_982576.html Natural Resources Being Exhausted]</ref> and the government-sponsored (and ultimately unsustainable) oppression of the indebted, impoverished and economically enslaved majority.<ref>[http://www.zerohedge.com/news/2013-02-06/guest-post-all-well All Is Well], Jim Quinn</ref><ref>[http://www.thenewamerican.com/economy/economics/item/14238-obama%E2%80%99s-trillion-dollar-coin-exposes-federal-reserve-scam Obama’s Trillion-Dollar Coin Exposes Federal Reserve Scam], Alex Newman, ''New American''</ref><ref>[http://mises.org/daily/4893 ''The Ethics of Money Production''], Jorg Guido Hulsmann</ref><ref>[http://www.youtube.com/watch?v=QIBFvikcl7g Stacy Herbert and Max Keiser: Flaming Banks] Max Keiser Quote: "Well, ''it's slavery''. You know, they had slavery, then they outlawed slavery but in its place were the Jim Crow laws: 'Coloreds Only. Whites Only.' Then the banks got involved and they have ''financial'' Jim Crow laws. If you're black and living in the ghetto, you are charged 40, 50, 60% to borrow money. If you're white and you work on Wall Street, you're charged ''negative'' 5% to borrow money. That's a ''financial'' Jim Crow law that goes down color lines. Now the big corporations who realize America's becoming a new ''plantation of slaves'' - they're saying, 'Forget it! We don't even make a pretense that there's a "middle class". Here's a product for those living on the plantation. And here's the product for the man livin' in the Big House!'"</ref><ref>[http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/3/25_Sinclair_-_Cyprus%2C_Gold%2C_Russia_%26_A_New_Monetary_System.html Jim Sinclair Interview]. Quote: "He [Paul Craig Roberts] spoke about the banks moving to enslave humanity, and he said the Cypriots had to do whatever it took to put a stop to this."</ref><ref>[http://www.marketoracle.co.uk/Article40103.html Americans Loving Their Servitude], James Quinn</ref>

==See also==
* [[Austrian Business Cycle Theory]]
* [[Central bank]]
* [[Monetary reform]]
* [[Murray Rothbard]]
* [[Ron Paul]]

==Notes==
{{reflist|4}}

==Links==
* [http://www.thefreemanonline.org/features/taking-money-back-part-i/ Taking Money Back: Part I] by [[Murray Rothbard|Murray N. Rothbard]], September 1995
* [http://www.thefreemanonline.org/features/fractional-reserve-banking-part-ii/ Fractional Reserve Banking: Part II] by Murray N. Rothbard, October 1995 (reprinted at [[LRC]] [http://www.lewrockwell.com/rothbard/rothbard239.html here])

*[http://econpapers.repec.org/paper/wpawuwpma/0203005.htm Fractional Reserve Banking as Economic Parasitism]
*[http://www.prosperityuk.com/prosperity/links/links.html Monetary Reform websites]
*[http://www.relfe.com/plus_5_.html I want the Earth Plus 5%]
*[http://www.youtube.com/watch?v=JUFxsZF5E48&list=LLG5bLlG3NQ8sHur0Oco-CmQ&feature=mh_lolz How Our Monetary System Works and Fails]
*[http://www.youtube.com/watch?v=jqvKjsIxT_8 Money As Debt (videoplay animation)]
*[http://www.youtube.com/watch?v=swkq2E8mswI&feature=like-suggest&list=UL The Secret of Oz (documentary video)]
*[http://dailyreckoning.com/ Daily Reckoning]
*[http://jsmineset.com/ Jim Sinclair's MineSet]
*[http://www.lewrockwell.com/ LewRockwell.com]
*[http://www.marketoracle.co.uk/ Market Oracle]
*[http://maxkeiser.com/ Max Keiser]
*[http://globaleconomicanalysis.blogspot.com/ MISH]
*[http://www.prudentbear.com/ PrudentBear.com]
*[http://www.youtube.com/watch?v=Bx5Sc3vWefE 12 Year Old Victoria Grant's Speech]
*[http://www.webofdebt.com/ Web of Debt]
*[http://www.zerohedge.com/ Zero Hedge]

{{DEFAULTSORT:Criticism Of Fractional-Reserve Banking}}
[[Category:Argumentation]]
[[Category:Money]]

Criticism of fractional reserve banking

2014-02-06T02:32:43Z

Karmaisking: /* Debt-free fiat money */

{{main|Fractional-reserve banking}}
'''Criticisms of [[fractional reserve banking]]''' and [[central bank|central banking]] have been put forward from a variety of perspectives, although the most vigorous and sustained criticism now comes from libertarians and anarcho-capitalists such as economists [[Jesús Huerta de Soto]] and [[Jörg Guido Hülsmann]], American politician [[Ron Paul]], and commentators such as historian Thomas Woods, Jim Grant of ''Grant's Interest Rate Observer'' and former US Budget Director David Stockman.<ref>[http://www.philippbagus.com/archivos/Working%20paper%20deposits%20loans%20and%20banking%20bagus%20howden%20block.pdf Deposits, Loans and Banking: Clarifying the Debate], Philipp Bagus, David Howden and Walter Block</ref><ref>[http://blog.mises.org/16521/fantastic-speech-by-de-soto/ Jesús Huerta de Soto Speech]</ref><ref>[http://mises.org/daily/5174/Life-with-the-Fed-Sunshine-and-Lollipops Life with the Fed], Thomas Woods</ref><ref>[http://mises.org/daily/5146/Over-to-You-H-Parker-Willis Over to you H Parker Willis], Jim Grant</ref><ref>[http://www.youtube.com/watch?v=1VcN_Z6L0jM&feature=player_embedded#at=609 James Grant Interview with James Turk]</ref><ref>[http://mises.org/daily/5113/The-End-of-Sound-Money-and-the-Triumph-of-Crony-Capitalism The End of Sound Money and the Triumph of Crony Capitalism], David Stockman, Henry Hazlitt Memorial Lecture, Austrian Scholar's Conference</ref><ref>[http://www.lewrockwell.com/orig11/stockman6.1.1.html Crony Capitalism Strikes Again], David Stockman</ref><ref>[http://www.lewrockwell.com/orig11/stockman6.1.1.html David Stockman Interview - Blame the Fed]</ref><ref>[http://www.zerohedge.com/news/2013-04-03/david-stockman-keynesian-endgame The Keynesian Endgame], David Stockman</ref><ref>[http://www.lewrockwell.com/2013/10/david-stockman/its-sundown-in-america/ Sundown in America], David Stockman</ref><ref>[http://www.lewrockwell.com/rockwell/imperative-sound-money.html The Social Imperative of Sound Money], Lew Rockwell</ref><ref>[http://lewrockwell.com/stockman/stockman16.1.html The Forgotten Cause of Sound Money]</ref><ref>[http://mises.org/daily/6397/The-Keynesian-Endgame The Keynesian Endgame]</ref> Most in the mainstream (both on the left and right) remain silent on the issue of fractional reserve banking and central banking,<ref>[http://www.lewrockwell.com/lewrockwell-show/2008/10/31/58-americas-slow-motion-fascist-coup/ Naomi Wolf Interview with Lew Rockwell], Lew Rockwell: "I've frankly never understood why people on the Left are ''not'' upset about the Federal Reserve. If you look back to the history..." Wolf: "We probably don't understand it!" Lew Rockwell:"...but you know the founding of the Fed before the law was, you know, with bipartisan support signed in 1913, the Federal Reserve Act was drafted at J.P. Morgan's private club - it's sounds like a conspiracy story, but I guess it sort of is - on Jekyll Island Georgia...Big bankers wrote the Federal Reserve Act for their benefit!"</ref><ref>[http://www.lewrockwell.com/rockwell/imperative-sound-money.html The Social Imperative of Sound Money], Lew Rockwell: "I find it sickening that there are so few voices outside the Austrian School that will stand up to this policy [of fiat money, fractional reserve banking and central banking]."</ref> although past critics have included mainstream economists such as Irving Fisher,<ref>''100% Money'', Irving Fisher</ref><ref>[http://en.wikipedia.org/wiki/A_Program_for_Monetary_Reform ''A Program for Monetary Reform'']</ref> and [[Milton Friedman]].<ref>Friedman, M., A Program for Monetary Stability, New York, Fordham University Press, 1960, pp. 65</ref><ref>[http://mises.org/daily/3108 The Social Imperative of Sound Money], Lew Rockwell: "I find it sickening that there are so few voices outside the [[Austrian School]] that will stand up to this policy (of [[fiat money]]/[[fractional reserve banking]]/[[central bank]]ing)".</ref> Within the economics profession, most criticisms are from the [[Austrian School]].<ref>[http://mises.ca/posts/blog/illogic-in-fractional-reserve-banking/ Illogic in Fractional Reserve Banking], James E. Miller</ref><ref>[http://mises.org/media/4014 The Economics of Legal Tender Laws], [[Jorg Guido Hulsmann]] (includes detailed commentary on [[fractional reserve banking|FRB]])</ref><ref>[http://mises.org/store/Money-Bank-Credit-and-Economic-Cycles-P290C0.aspx Money, Bank Credit and Economic Cycles], Jesus Huerta de Soto, Mises Institute ISBN: 978-1-933550-39-8</ref><ref>[http://mises.org/store/Meltdown-P557.aspx ''Meltdown''], Tom Woods, Regnery Press ISBN: 9781596985872</ref><ref>[http://www.marketoracle.co.uk/Article25212.html The Faults of FRB], Thorsten Polleit</ref> There are also critics from outside the economics profession who advocate [[monetary reform]].<ref>[http://www.nakedcapitalism.com/2010/12/matt-stoller-end-this-fed.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capitalism%29 End This Fed], Matt Stoller</ref><ref>For an example of the writings of these groups, see [http://www.bilderberg.org/monref.htm this] contribution from Bilderberg.org</ref><ref>[http://www.youtube.com/watch?v=VMngK0t5WkY Max Keiser]</ref><ref>[http://www.marketoracle.co.uk/Article28533.html The Global Debt Crisis], Ellen Hodgson Brown</ref><ref>[http://www.mises.org/daily/6358/The-Backroom-World-of-Central-Banking Lords of Finance]</ref>

==Terminology==

Critics of fractional reserve banking and the related fiat paper monetary system may refer to it by the term '''debt-based monetary system''',<ref>[http://www.thenewamerican.com/economy/economics/item/14238-obama%E2%80%99s-trillion-dollar-coin-exposes-federal-reserve-scam Obama’s Trillion-Dollar Coin Exposes Federal Reserve Scam], Alex Newman, ''New American''</ref><ref>[http://mises.org/daily/4631 Is Our Money Based On Debt?], Robert Murphy</ref><ref name="speech">For an example of the public use of the term, see the [http://www.prosperityuk.com/prosperity/articles/earl.html speech] of the Earl of Caithness in the House of Lords on 5 March 1997</ref> or '''credit-based monetary system'''.<ref>For example of the public use of the term, see this speech given by [[Zhou Xiaochuan]], [http://www.bis.org/review/r090402c.pdf Reform the monetary system], 23 March 2009 (BIS), and this article, [http://www.nakedcapitalism.com/2009/02/steve-keen-roving-cavaliers-of-credit.html ''Roving Cavaliers of Credit''] by Steve Keen (with commentary by Yves Smith)</ref><ref>[http://globaleconomicanalysis.blogspot.com/2010/09/myths-about-whats-economically.html Myths], MISH</ref><ref>[http://globaleconomicanalysis.blogspot.com/2010/07/are-we-trending-towards-deflation-or-in.html Deflation], MISH</ref><ref>[http://globaleconomicanalysis.blogspot.com/2008/04/deflation-in-fiat-regime.html Deflation In A Fiat Regime?], MISH</ref> They may also refer to money created in parallel with debt as '''debt money''' or '''endogenous money''', reflecting the fact that virtually all new money is currently created by people or businesses or governments further indebting themselves to banks.<ref name="death"/><ref>[http://www.debunkingeconomics.com/Papers/Money/KeenModellingEndogenousMoneyICAPE.pdf Endogenous Money], Steve Keen</ref> This monetary system is called "endogenous" because the money supply is flexible, expanding in parallel with the demand for debt and stalling or contracting when demand for debt declines.<ref>[http://www.debunkingeconomics.com/Papers/Money/KeenModellingEndogenousMoneyICAPE.pdf Endogenous Money], Steve Keen</ref> Some consider this a perverse and dysfunctional way of introducing new money into the economy.<ref name="death"/>

The term, "debt-based monetary system," and related terms such as "debt money" are not used by conventional economists. Mainstream economists often refer to "debt money" by its antonym "credit" and distinguish between types of money only ''after'' the money is created. The very definition of "money" and the distinction between "debt" and "money" (and their respective economic effects) are still sources of vigorous ongoing debate.<ref>[http://www.youtube.com/watch?v=s8HnN8Htr1M David Graeber's Interview with Max Keiser]</ref><ref>[http://lewrockwell.com/wile/wile25.1.html Daily Bell Interview: Dr. Joseph Salerno]</ref><ref>[http://mises.org/daily/5052/Deflation-Confusion-Money-Is-Not-Credit Money Is Not Credit], Robert Blumen</ref><ref>[http://globaleconomicanalysis.blogspot.com/2009/02/fiat-world-mathematical-model.html Fiat World], MISH</ref><ref>[http://globaleconomicanalysis.blogspot.com/2010/09/myths-about-whats-economically.html What's Economically Important], MISH</ref> Mainstream economists rarely if ever discuss the origins of modern money and generally do not actively discuss or comment on the fact that virtually all money is now created through individuals, or businesses, or governments going into debt to government-sponsored commercial banks.<ref>[http://mises.org/daily/3108 The Social Imperative of Sound Money], Lew Rockwell</ref><ref>For an example of the mainstream use of the term "credit" instead of "debt-money" see [http://www.ft.com/cms/s/bdfa429e-17a2-11dd-b98a-0000779fd2ac,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2Fbdfa429e-17a2-11dd-b98a-0000779fd2ac.html&_i_referer=http%3A%2F%2Fwww.ft.com%2Fhome%2Fasia this] example from the Financial Times, 1 May 2008</ref> Discussion around the nature of "debt-based" money and the arguments over its effects on the economy are notably absent from most established mainstream academic economic publications<ref>Paul Krugman, writing at [http://www.slate.com/id/9593 Slate.com], stated that the Austrian theory of business cycles was "about as worthy of serious study as the phlogiston theory of fire".</ref> and most mainstream economists instead argue that the origin of different kinds of money (and the volume of their issuance) does not really matter, at least in the long run.<ref>[http://www.lewrockwell.com/wenzel/wenzel87.1.html Senior Fed Economist Calls Ron Paul a Pinhead]</ref> This mainstream idea is referred to as the theory of "money neutrality".<ref>[http://www.lewrockwell.com/wenzel/wenzel87.1.html Senior Fed Economist Calls Ron Paul a Pinhead]</ref><ref>[http://mises.org/daily/5172/Is-Inflation-Harmless-or-Even-Good Is Inflation Harmless or Even Good?], Robert Murphy</ref><ref>[http://libertarianpapers.org/articles/2011/lp-3-14.pdf Free Banking and the Structure of Production], Dan Mahoney</ref> Some commentators have speculated that the unusual "silence" around the topics of fractional reserve banking and central banking and the staunch refusal to consider alternative theories of money can be attributed to the simple fact that many economists are on the payroll of the major commerical or central banks of the world and are beholden to those banks for their livelihood.<ref>[http://www.safehaven.com/article/15068/economists-opposing-fed-audit-are-on-fed-payroll Economists on Fed Payroll], MISH</ref><ref>[http://www.huffingtonpost.com/2009/09/07/priceless-how-the-federal_n_278805.html Priceless], Ryan Grim, Huffington Post</ref><ref>[http://www.marketoracle.co.uk/Article26581.html Ten Reasons The Banksters Got Away With It], Danny Schechter</ref><ref>[http://www.youtube.com/watch?v=FxtCn2GyqKc&feature=related Corruption in Academic Economics], Charles Ferguson</ref><ref>[http://www.marketoracle.co.uk/Article27805.html Currency Dead End Paradox], Jim Willie CB</ref> Those economists who "dare" to speak about such topics are simply not employed by the banks, by government-sponsored universities or by international financial institutions and are not published in mainstream economic publications and, therefore, their views are not widely disseminated to the general public who are generally taught by government-sponsored teachers and receive their news from the mainstream media.<ref>[http://www.huffingtonpost.com/2009/09/07/priceless-how-the-federal_n_278805.html Priceless], Ryan Grim, Huffington Post</ref><ref>[http://www.marketoracle.co.uk/Article26581.html Ten Reasons The Banksters Got Away With It], Danny Schechter</ref><ref>[http://www.youtube.com/watch?v=FxtCn2GyqKc&feature=related Corruption in Academic Economics], Charles Ferguson</ref><ref>[http://www.wsws.org/en/articles/2013/01/29/keen-j29.html UWS victimises Professor Steve Keen]</ref><ref>[http://www.zerohedge.com/news/2013-05-02/guest-post-nicholas-taleb-against-establishment-economists Establishment Economists]</ref>

== Typical criticisms ==

Founder of the so-called "New Austrian School", Professor Antal E. Fekete, has stated the following in relation to the current monetary system:<ref>[http://www.professorfekete.com/articles/AEFTheSilverSaga.pdf The Silver Saga]</ref>

{{quote|The world economy, sagging as it is under the weight of its debt tower and fast depreciating irredeemable currencies, is clearly on its way to self-destruction. The forcible elimination of, first, silver and then a hundred years later of gold, from the monetary system removed the only ultimate extinguishers of debt we have. In consequence, total debt can only grow, never contract. The process is hidden since the unpaid and unpayable debt is accumulating as sovereign debt of governments. The world is deluding itself that sovereign debt can increase indefinitely as governments can extend its maturity indefinitely. In 2008 we had the wake-up call that it cannot. Unless we stop the proliferation of debt, the world is facing prolonged deflation, depression, continuing capital destruction, bankruptcies and unprecedented unemployment. It is leading to a breakdown of law and order. It could spell the end of our civilization.}}

In August 2004, four years ''before'' the Global Financial Crisis of September 2008 and the ongoing financial crises in Europe and elsewhere, Austrian commentator Robert K. Landis stated the following:<ref>[http://www.goldensextant.com/SavingtheSystem.html Saving the System]</ref>

{{quote|No, the die is cast: we shall have the catastrophe. Our fiat monetary system got a reprieve in the 1980's, not a deliverance. All that has happened since, with the fantastic mispricing of credit the Greenspan Fed has engineered, and the massive global malinvestment this has engendered, is that the dimensions of the unraveling have become more dire.

Mises called this one too: "Certainly, the banks would be able to postpone the collapse; but nevertheless, as has been shown, the moment must eventually come when no further extension of the circulation of fiduciary media is possible. Then the catastrophe occurs, and its consequences are the worse and the reaction against the bull tendency of the market the stronger, the longer the period during which the rate of interest on loans has been below the natural rate of interest and the greater the extent to which roundabout processes of production that are not justified by the state of the capital market have been adopted."

With respect to the form the denouement will take, much has been written within the gold community on the subject of whether we face hyperinflation or deflationary depression as the prelude to monetary collapse. Both sides of the debate appear to accept the premise that whatever may transpire will bear a linear relationship to what now exists. The disagreement centers on the direction the line will go. But today's markets are fully linked by derivatives and technology, and they are patrolled by wolf packs of large, leveraged speculators not noted for their patient outlook. So it seems likely that the terminal monetary crisis will unfold on virtually an instantaneous and discontinuous basis, once the fog of statistical deceit and false market cues begins to lift and a clear trend either way becomes evident. We are not likely to enjoy the luxury of observing either a deflation or an inflation unfold in the fullness of time, but rather, just as Mises foretold, a final and total catastrophe of our fiat monetary system.}}

Financial commentator Jim Willie has written the following regarding the current fiat money system:<ref>[http://www.marketoracle.co.uk/Article39362.html Raging Gold Bull]</ref>

{{quote|The West cannot solve its problems, hardly properly described as a financial crisis anymore, under the current framework bound to the fiat paper currencies. The global monetary war is heating up notably. The heavy liquidity has caused unfixable distortions in every conceivable bond market niche. The new and better debt devices have been exposed for their shams. The leading central bankers lost their credibility long ago. The weakness is as broad as it is deep, a reliance upon paper wealth and paper structures and paper contracts, during a time of zero bound interest rates and unfettered hyper monetary inflation to cover the debts. Almost no foreign USTreasury Bond buyers exist anymore. The US has become Weimar Amerika, a fascist enclave.}}

On 5 March 1997, in a speech in the House of Lords in London England, the Earl of Cathiness made the following observations:<ref>[http://prosperityuk.com/2001/06/our-debt-based-money-system-will-break-us/ Our debt-based monetary system will break us], Earl of Cathiness, House of Lords, Wednesday, 5 March, 1997, Hansard, Vol. 578, No. 68, columns 1869-1871</ref><ref>See also the additional House of Lords speeches contained [http://earthlinggb.wordpress.com/2011/04/06/british-house-of-lords-stunning-speeches/ here]</ref>

{{quote|...it is also a good time to stand back, to reassess whether our economy is soundly based. I would contest that it is not, not for the reason to which the noble Lord, Lord Eatwell, alluded, which is that it is the Government’s fault, but our whole monetary system is utterly dishonest, as it is debt-based. “Dishonest” is a strong word, but a system which by its very actions causes the value of money to decrease is dishonest and has within it its own seeds of destruction. We did not vote for it. It grew upon us gradually but markedly since 1971 when the commodity-based system was abandoned.

Let us look at what has happened since then. The money supply in 1971 was just under £31 billion. At the end of the third quarter of last year, it was about £665 billion. In 25 years it has grown by a staggering 2,145 per cent. Where has the money come from? Interestingly, the Government have only minted a further £20 billion in that time. It is the banks, the building societies and our commercial lenders who have created the balance of £614 billion. If this rate of growth is projected over the next 25 years, the money supply in 2022 will be over £14,000 billion.

All that new money bears interest paid either by us as individuals, by companies or by the Government. Today the Government pay over £30 billion annually in interest charges — coincidentally about the same as the total money supply only 25 years ago. Governments since then have abdicated their responsibility for producing new money and controlling the money supply so that now they are marginalised. In 1971 government notes and coins accounted for 14 per cent of the money supply. Now it is only about 3.5 per cent. “So what?”, noble Lords might ask.

The problem is that it is commercial lending that has boosted the money supply, thus increasing debt and, as sure as night follows day, inflation follows growth in money supply of this sort...

Conventional wisdom tells us that in order to create new jobs and boost the economy, interest rates have to be reduced. That has happened. People are encouraged to borrow to invest and spend. That has happened. As the continuing flow of new money finds its way into the economy, inflation will follow and up will go interest charges again to reduce the level of borrowing. In order to pay the increasing levels of interest, borrowers will once more have to reduce expenditure in other areas of economic activity. The cycle will continue, but the next time, as before, we will all start deeper in debt and with a burden harder to carry. Personal debt has already increased by nearly 3,000 per cent since 1971. How much more can we take? I hope, for the sake of our economy, without which we cannot finance what we want to see — a good health service and a good social security system among other things — we will question this conventional wisdom.

We all want our businesses to succeed, but under the existing system the irony is that the better our banks, building societies and lending institutions do, the more debt is created. The noble Lord, Lord Kingsdown, said that there is little that can be done about debt. No, I do not believe that. There is a different way: it is an equity-based system and one in which those businesses can play a responsible role. The next government must grasp the nettle, accept their responsibility for controlling the money supply and change from our debt-based monetary system. My Lords, will they? If they do not, our monetary system will break us and the sorry legacy we are already leaving our children will be a disaster.}}

On 4 November 1999, Lord Sudeley stated in the House of Lords:

{{quote|The only way in particular to stop inflation is to stop banks from creating credit. The supply of money should be removed from banks and should be assumed by governments, who should issue it on a debt-free basis. Such a view is supported by five disparate quarters: the noble Lord, Lord Beswick, in the debate which he introduced to this House in 1985, Disraeli, the Vatican under Pope Pius XI in his Encyclical Quadragesimo Anno in 1931, the Tsars of Russia in the last century, who prevented the setting up of a privately owned central bank, and, above all, Abraham Lincoln, who said that governments should create, issue, and circulate all currency and credits needed to satisfy the spending power of governments and the buying power of consumers.

By adopting those principles, the taxpayer would be saved immense sums of interest. Lincoln’s greenbacks were generally popular, and their existence let the genie out of the bottle with the public becoming accustomed to government-issued, debt-free money. The year after Lincoln’s assassination, Congress set to work at the bidding of the European central banking interests to retire the greenbacks from circulation and to ensure the reinstitution of a privately owned central bank under the usurers’ control.

During the history of the United States, the money power has gone back and forth between Congress and some privately owned central bank. The American people fought off four privately owned central banks before succumbing to a fifth privately owned central bank, at that time essential, owing to the period of weakness during the Civil War.

The founding fathers of the United States knew the evils of a privately owned central bank. They had seen how the Bank of England ran up the British national debt to such an extent that Parliament was forced to place unfair taxes on the American colonies, leading to their loss following, the American Revolution.

I now conclude. Once the fundamental decision is taken to prevent sterling from being debt-based, the Commonwealth could act as the right monetary union to use sterling debt-free as a genuine alternative to the dollar and the euro.}}

Norm Franz states in his ''Money and Wealth in the New Millennium'':<ref>[http://www.amazon.com/Money-Wealth-Millennium-Norm-Franz/dp/0971086303 ''Money and Wealth in the New Millennium''], Norm Franz</ref>

{{quote|Gold is the money of kings, silver is the money of gentlemen, barter is the money of peasants – but debt is the money of slaves.}}

12th century Chinese scholar Hu Zhiyu stated:<ref>Ralph T. Foster, ''Fiat Paper Money, The History and Evolution of Our Currency'', page 19</ref>

{{quote|Paper money, the child, is dependent on precious metals, the mother. [Inconvertible paper notes are therefore] orphans who lost their mother in childbirth.}}

Robert H. Hemphill, credit manager of the Federal Reserve in Atlanta, stated in 1939:<ref>Preface to ''100% Money'', Irving Fisher. Note: This quote has not been traced to the primary source. See for example [http://www.webofdebt.com/excerpts/introduction.php Web of Debt] and [http://www.lewrockwell.com/north/north908.html Gary North's critique of the book and its sources]</ref>

{{quote|If all the bank loans were paid, no one would have a bank deposit and there would not be a dollar of coin or currency in circulation. This is a staggering thought. Someone has to borrow every dollar we have in circulation, cash or credit. If the banks create ample synthetic money we are prosperous; if not, we starve. When one gets a complete grasp of the picture the tragic absurdity of our hopeless position is almost incredible, but there it is. It (the banking problem) is the most important subject intelligent persons can investigate and reflect upon. It is so important that our present civilization may collapse unless it becomes widely understood and the defects remedied very soon.}}

British monetary reformer Michael Rowbotham states the following in his book, ''The Grip of Death'' (the title being derived from the literal origin of the word "mortgage"):<ref name="death">{{cite book |last= Rowbotham |first= Michael |title= The Grip of Death: A Study of Modern Money, Debt Slavery and Destructive Economics | year= 1998 |publisher= Jon Carpenter Publishing |isbn= 9781897766408 }}</ref>

{{quote|It is actually not in the least surprising that nations are chronically in debt, governments have inadequate resources, public services are under-funded and people are beset by mortgages and overdrafts. The reason for all this monetary scarcity and insolvency is that the financial system used by all national economies worldwide is actually founded upon debt. To be direct and precise, modern money is created in parallel with debt. The reason for the failure of economists to question patently invalid monetary data becomes clear - there is a total acceptance by them of the most extraordinary method for supplying money to the modern economy.

The creation and supply of money is now left almost entirely to banks and other lending institutions. Most people imagine that if they borrow from a bank, they are borrowing other people's money. In fact, when banks and building societies make any loan, they create new money. Money loaned by a bank is not a loan of pre-existent money; money loaned by a bank is additional money created. The stream of money generated by people, businesses and governments constantly borrowing from banks and other lending institutions is relied upon to supply the economy as a whole. Thus the supply of money depends upon people going into debt, and the level of debt within an economy is no more than a measure of the amount of money that has been created...

All around us, the gross failure of modern economics screams out to be addressed. The towering indifference of those shining offices scraping the sky above the menacing ghettos of Brooklyn; the speculative channelling of billions of pounds of volatile international finance, which can leave a country prosperous one week and plunged into decline the next; the ludicrous production of cheap goods of poor durability, so that jobs are 'protected', and we can recycle the materials and make the goods all over again; the ridiculous export drives by which every country simultaneously attacks the economies of every other nation, under the pretence that such global free trade improves the general wellbeing; the staggering waste of a throwaway, quick-growth, all-new spiral of constant economic change; the outrageous financial debt which Third World countries have actually paid many times over, but which, due to interest, is now larger than ever before - a debt which forces those impoverished nations to compete to supply goods already in surplus; the cynical manipulation of human emotions into buying fashion-obsessed trivia; the burgeoning transport demands of escalating economic growth and centralisation, with identical goods crisscrossing the globe, regardless of environmental cost; the fact that despite the incredible productive capacity of the modern economy, people are obliged to work harder, with ever greater efficiency, forever forced to adapt and retrain or face a life of indignity and misery as one of the unemployed.

Both those in work and out must watch, as the world they know and understand changes almost in front of their eyes like some nightmarish Kafka-esque novel. This is the era of accelerating economic change. The benefits are highly dubious, and no-one even pretends that the economy is responding to what people actually want. The only justification offered for the changes is that this is 'the age of progress', and 'you can't stop progress', even if you are human and the progress you are discussing is supposed to be about people and the lives they might lead in the future. The world of economics has got mankind by the throat and everyone knows it, and no-one has a clue where we are going or why we are going there.

But is this surprising? If a monetary system is invalid or flawed, then the entire economy is based on the mathematics of error, and must be riddled with the effects. If the financial system upon which our economies are built is defective, and yet monetary considerations dominate our economic decisions, should we be surprised if the results are less than satisfactory?

The major role played by bank credit, which forms over 95% of the money stock in most developed nations, suggests that it cannot but be implicated in these trends. This is further suggested by the way that banking has literally become the focal point of modern economic management, through manipulating interest rates. The stargazers of Whitehall and the Federal Reserve hold their councils, trying to tread the non-existent tightrope between growth and recession by debating quarter percentage-points of interest rates. Alan Greenspan, the Chairman of the Federal Reserve, engagingly describes his task in controlling the American economy through adjusting interest rates as a matter of 'taking the champagne away once the party has started'. Businessmen around the world hold their breath, measuring his every word, wondering what he will decide. There could be no greater indictment of contemporary financial economics than this; that a fluctuating financial digit on a single computer system in a single street in a single country should have the ability to dominate the economies of an entire planet...

The past thirty years are almost unique by comparison with the previous three centuries in the lack of attention that has been directed at debt and the financial system. Throughout the eighteenth century, there were repeated calls for reform. During the nineteenth century, excessive banking was held by many to be directly responsible for the waves of appalling poverty that swept Europe and America during a period of increasing industrialisation and agricultural development. In this century, during the depression of the 1930s, the financial system effectively seized up and brought virtual collapse to the economies of the world in an age which was, perhaps for the first time, obviously wealthy, and in which technology offered people real freedom as well as material prosperity. One observer judged that over 2,000 schemes for monetary reform were put forward at that time - all with a common theme in their outright rejection of the debt-based financial system as it then operated. The same system continues to this day, modified in small details, but unchanged in principle; and the recent financial crisis in Asia shows the potential for collapse still exists.

However the issue of economic volatility through booms, slumps, crises, and collapses has never been the sole point of criticism. It is the long-term trends that a debt-based financial system fosters which are most destructive. The most obvious of these is declining personal solvency. Mortgages support over 60% (£420 billion) of the money stock in the UK and over 70% ($4.2 trillion) in the US. Housing-debt statistics for the UK and the US show that there has been a dramatic decline in true home ownership as mortgages become higher and ever more widespread. There can be little question that relying upon housing debt to supply money to an economy lacks economic and political justification. However, taken in conjunction with the marked rise in commercial debt, mortgages have a knock-on effect. In an economy where the price of goods is elevated by commercial debt and consumer incomes are deeply eroded by mortgage debt, there is a persistent and subtle advantage given to low-quality, mass-produced goods, and growth is fostered in this direction. The persistent decline in product durability and the growth-culture of a rapacious consumer society can be directly traced to the debt-based financial system.

The financial system has also generated a serious distortion of agriculture. Excessive farming debt has driven out the most efficient producers - small/medium sized farms. Meanwhile, the relentless pursuit of farming and processing methods oriented towards a low-price market now involves the production of foodstuffs of poor nutritional value, inferior to that which the land can provide and inferior to that which consumers actually desire.

The nature of growth within a debt economy affects not only the quality of output, but distribution and marketing. Intense competition for sales within a debt-based economy results in the use of transport as a competitive strategy by businesses. This has led to a progressive breakdown of local and regional supply networks, and marketing over ever-greater distances, leading to escalating commercial traffic demands.

At the international level, trade is deeply affected by the debt-based financial system. The aggressive pursuit of maximum export revenues, rather than seeking a simple balance of trade, is entirely due to the fact that even the wealthiest nations operate from a position of gross insolvency. International trade has degenerated into a competition between nations to alleviate their indebtedness, rather than a process involving a mutually beneficial exchange of goods and services.

Endemic Third World debt is also directly attributable to the reliance upon debt and banking to supply money. The theoretical model of borrowing from the World Bank/IMF, investing in development and repaying loans from export revenues, is one of the great failures of contemporary economics. The persistent inability on the part of debtor nations to repay these loans suggests strongly that the nature of the indebtedness suffered by the Third World has absolutely no actual legitimacy or validity...

The more one explores the broad impact of debt, the more apparent it becomes that bank-credit constitutes a dysfunctional form of money. An economy based almost entirely upon bank-credit and debt experiences an intense drive for growth, regardless of need or demand. Bank credit engenders financial dependence, injects instability and fosters growth-distortions, both within an economy and throughout the international arena.

Reform of the debt-based financial system is clearly not a minor issue. It is not a matter of fiddling around with taxes, incomes and allowances to make things apparently more equal, more efficient, or perhaps more straightforward. Changing the debt-based financial system involves gradually altering the very foundations upon which national and international economics is based. Monetary reform is concerned with attempting to determine a new principle for the supply of money to an economy - the purpose being to create a supportive financial environment in which more constructive economic trends are allowed to emerge, and in which more benign systems of overall economic management become possible. In view of the rapacious onslaught on the environment, the waste of natural resources and the social and political friction caused by de-regulated commerce and capital flows, this is at once a promising, but a sobering prospect.}}

Dr Chris Leithner states in his book ''The Evil Princes of Martin Place'':<ref>[http://economics.org.au/2011/04/the-banking-bubble-blow-by-blow/ The Evil Princes of Martin Place]</ref>

{{quote|The inflation that necessarily results from fractional reserve banking is a “tax” by which the early recipients of counterfeit money expropriate late recipients’ wealth. The tax is particularly insidious because it’s so well hidden. Few people — apparently including banksters and mainstream economists! — understand it (or, if they understand it, certainly don’t draw attention to it); and still less do they discuss its ethical and distributional implications. Obviously, it’s in insiders’ interest to distract outsiders’ attention from the source of the counterfeiting. It’s also in their interest to reverse the order of causality with respect to the cause and consequences of inflation, and thereby further to bamboozle the public. Accordingly, governments and mainstream economists don’t attribute the consequence (rising prices) to its single cause (inflation); instead, they brazenly and diametrically incorrectly insist that rising prices cause inflation! (p. 143)...

Gosplan, the Soviet Union’s central planning agency, set targets for the production of steel, cement and myriad other goods and services; Western central banks set targets for the Overnight Cash Rate and the Consumer Price Index. The chaotic consequences of central plans, Soviet and Western, necessarily reverberate throughout the economy … It’s quite comical: people who claim they “believe in the free market” blindly and unthinkingly affirm central banking and its relentless interventions into the market. Elementary logic completely escapes them: if you reject central planning in general, then you must also reject specific aspects like the central planning of money. If you abhor attempted price-fixing, then you must abhor the attempt to fix the Overnight Cash Rate. (pp. 254-55)...

[I]t is highly improbable that the combination of a pure gold standard and a 100% reserve for deposits has ever resulted in a prolonged rise of prices. The historical record is telling: in no year from 1492 to the present has the total supply of gold increased by more than 5%. (p. 552)}}

Ron Paul stated in his book ''End the Fed'':<ref name="Paul_End">Ron Paul. [http://mises.org/daily/3687 ''End the Fed''], ''Mises Institute'', September 03, 2009. Chapter 2 of the book ''End the Fed''. Referenced 2011-03-16.</ref>

{{quote|American presidents actually worked to implement and defend the gold standard, which put a brake on the ability of the largest banks to expand credit without limit. The gold standard worked like a regulator in this way. Ultimately, banks had to function like every other business. They could expand and make risky loans up to a point, but when faced with bankruptcy, they had nowhere they could turn. They would have to contract loans and deal with extreme financial pressures. Risk bearing is a wonderful mechanism for regulating human decision making. This created a culture of lending discipline.

In the jargon of the day, the system lacked "elasticity." That's another way of saying that banks couldn't expand money and credit as much as they wanted. They couldn't inflate without limit and count on a centralized institution to bail them out...

The banking industry has always had trouble with the idea of a free market that provides opportunities for both profits and losses. The first part, the industry likes. The second part is another issue. That is the reason for the constant drive in American history towards the centralization of money and banking, a trend that not only benefits the largest banks with the most to lose from a sound money system, but also the government, which is able to use an elastic system as an alternative form of revenue support. The coalition of government and big bankers provides the essential backbone of support for the centralization of money and credit...

Consider the Soviet case: to my knowledge, no business ever went under with the Soviet system but society in general grew ever poorer. Think of that Soviet system applied to the banking industry and you have the Fed.}}

He also wrote the following in March 2013:<ref>[http://lewrockwell.com/paul/paul854.html The Great Cyprus Bank Robbery]</ref>

<blockquote>Remember that under a fractional reserve banking system only a small percentage of deposits is kept on hand for dispersal to depositors. The rest of the money is loaned out. Not only are many of the loans made by these banks going bad, but the reserve requirement in Euro-system countries is only one percent! If just one euro out of every hundred is withdrawn from banks, the bank reserves would be completely exhausted and the whole system would collapse. Is it any wonder, then, that the EU fears a major bank run and has shipped billions of euros to Cyprus?

The elites in the EU and IMF failed to learn their lesson from the popular backlash to these tax proposals, and have openly talked about using Cyprus as a template for future bank bailouts. This raises the prospect of raids on bank accounts, pension funds, and any investments the government can get its hands on. In other words, no one's money is safe in any financial institution in Europe. Bank runs are now a certainty in future crises, as the people realize that they do not really own the money in their accounts. How long before bureaucrat and banker try that here?

Unfortunately, all of this is the predictable result of a fiat paper money system combined with fractional reserve banking. When governments and banks collude to monopolize the monetary system so that they can create money out of thin air, the result is a business cycle that wreaks havoc on the economy. Pyramiding more and more loans on top of a tiny base of money will create an economic house of cards just waiting to collapse. The situation in Cyprus should be both a lesson and a warning to the United States. We need to end the Federal Reserve, stay away from propping up the euro, and return to a sound monetary system.</blockquote>

In the foreward to ''Fiat Money Inflation in France'', Mr John McKay wrote the following:<ref>[http://mises.org/books/inflationinfrance.pdf ''Fiat Money Inflation in France''], Andrew Dickson White, 1912</ref>

{{quote|The story of "Fiat Money Inflation in France" is one of great interest to legislators, to economic students, and to all business and thinking men. It records the most gigantic attempt ever made in the history of the world by a government to create an inconvertible paper currency, and to maintain its circulation at various levels of value. It also records what is perhaps the greatest of all governmental efforts—with the possible exception of Diocletian's—to enact and enforce a legal limit of commodity prices. Every fetter that could hinder the will or thwart the wisdom of democracy had been shattered, and in consequence every device and expedient that untrammelled power and unrepressed optimism could conceive were brought to bear.

But the attempts failed. They left behind them a legacy of moral and material desolation and woe, from which one of the most intellectual and spirited races of Europe has suffered for a century and a quarter, and will continue to suffer until the end of time. There are limitations to the powers of governments and of peoples that inhere in the constitution of things, and that neither despotisms nor democracies can overcome.

Legislatures are as powerless to abrogate moral and economic laws as they are to abrogate physical laws. They cannot convert wrong into right nor divorce effect from cause, either by parliamentary majorities, or by unity of supporting public opinion. The penalties of such legislative folly will always be exacted by inexorable time. While these propositions may be regarded as mere commonplaces, and while they are acknowledged in a general way, they are in effect denied by many of the legislative experiments and the tendencies of public opinion of the present day. The story, therefore, of the colossal folly of France in the closing part of the eighteenth century and its terrible fruits, is full of instruction for all men who think upon the problems of our own time.}}

C.J. Maloney wrote of the desperation of Henry VIII of England to counterfeit gold by engaging charlatan-alchemists:<ref>[http://www.lewrockwell.com/maloney/maloney28.1.html The Desperation of King Henry VIII], C.J. Maloney</ref>

{{quote|Despite his formidable education and great historic reputation, the disastrous interventions into the economy, the lifelong dishonesty with the currency in his care and, most of all, his laughable attempts to bring a sorcerer into his court to conjure gold, mark the great King Henry VIII as a fool. Yet there is no reason, be warned, for anyone to feel superior to the King; one only needs to pick up a newspaper to see that though alchemy may be a dead science, it has merely taken up new forms.

This has always been and always will be, for its immortality is powered by economic man’s most dangerous, fondest wish, the one that will drive us to endless imbecilities and repeated destruction – the ardent desire to believe that you can get something for nothing. His adherence to that belief made King Henry VIII a man of his times – and ours.}}

In his treatise, ''The Ethics of Money Production'', which was published by the Mises Institute in October 2008, Jörg Guido Hülsmann presents (at pages 238-239) the following description of the perverse rise of fiat money and fractional reserve banking:

{{quote|There is no tenable economic, legal, moral, or spiritual rationale that could be adduced in justification of paper money and fractional-reserve banking. The prevailing ways of money production, relying as they do on a panoply of legal privileges, are alien elements in the capitalist [i.e., true free market] economy. They provide illicit incomes, encourage irresponsibility and dependence, stimulate the artificial centralization of political and economic decision-making, and constantly create fundamental disequilibria that threaten the life and welfare of millions of people. In short, paper money and fractional-reserve banking go a long way toward accounting for the excesses for which the capitalist economy is widely chided.

We have argued that these monetary institutions have not come into existence out of any economic necessity. They have been created because they allow an alliance of politicians and bankers to enrich themselves at the expense of all other strata of society. This alliance emerged rather spontaneously in the seventeenth century; it developed in multifarious ways up to the present day, and in the course of its development it created the current monetary institutions.

…The driving force that propelled the development of central banks and paper money was the reckless determination of governments, both aristocratic and democratic, to increase their revenue, if necessary in violation of good faith and of all established rules of commerce.}}

The father of the Deutsche Mark, Wilhelm Röpke (1899-1966) stated:<ref>[http://www.professorfekete.com/articles/AEFAmericanBasesGermanyGoldBasis.pdf The Gold Basis], Antal E Fekete</ref>

{{quote|It is not the gold standard that failed, but those in whose care it was entrusted.}}

Many [[monetary reform]]ers claim that a fiat money/fractional-reserve based banking system is inherently destructive and inevitably generates [[inflation|debasement of the currency]], extreme inequality, the destruction of the middle class<ref name="Paul_End" /> and [[Austrian Business Cycle Theory|wrenching business crises]].<ref>[http://www.marketoracle.co.uk/Article25212.html The Faults of FRB], Thorsten Polleit</ref><ref name="Paul_End" /><ref>[http://mises.org/store/Money-Bank-Credit-and-Economic-Cycles-P290C0.aspx Money, Bank Credit and Economic Cycles], Jesus Huerta de Soto, Mises Institute ISBN: 978-1-933550-39-8</ref><ref>[http://www.mises.org/Books/mysteryofbanking.pdf Murray Rothbard, ''The Mystery of Banking'']</ref><ref name="books.google.com">{{cite book |last= Brown |first= Ellen H. |title= Web of Debt |url= http://books.google.com/books?id=ILMGrEC524UC |accessdate= 2007-12-15 |year= 2007 |publisher= Engdahl Publishing|isbn= 0979560802 }}</ref><ref name="death"/><ref name="monetary.org">[http://www.monetary.org/lostscienceofmoney.html Stephen A. Zarlenga, ''The Lost Science of Money'' AMI (2002)]</ref><ref>[http://mises.org/story/3108 Sound Money], Lew Rockwell</ref><ref>[http://mises.org/story/1971 Our Money Madness], Lew Rockwell</ref><ref>[http://mises.org/rothbard/genuine.asp The Case for a Gold Dollar], Murray Rothbard</ref><ref name="twilight"/> Vladimir Z. Nuri has analyzed fractional reserve banking and considers it a form of economic parasitism.<ref>[http://econpapers.repec.org/paper/wpawuwpma/0203005.htm Fractional Reserve Banking as Economic Parasitism]</ref> Ellen Hodgson Brown has compared fractional reserve banking and the charging of compound interest on created money with cancer.<ref>[http://www.marketoracle.co.uk/Article39053.html Why Bankers Rule the World], Ellen Hodgson Brown</ref>

These views are not accepted by mainstream government-supported economists. For example David Andolfatto, Vice President in the Research Division of the Federal Reserve Bank of St. Louis, has openly called Dr. Ron Paul a "pinhead" for holding such views.<ref>[http://www.lewrockwell.com/wenzel/wenzel87.1.html Senior Fed Economist Calls Ron Paul a Pinhead], LRC</ref> He later tried unsuccessfully to delete or retract his statements and expressed his regret over making the comments.<ref>[http://www.lewrockwell.com/wenzel/wenzel92.1.html Fed Economist in Retreat], Robert Wenzel</ref>

Critics of fractional reserve banking frequently argue that since money creation requires ''loans'' from the banking system, people are required to go further into debt in order for any new money to be created. They theorize that this eventually causes [[Austrian Business Cycle Theory|credit cycle]]s (or [[Austrian Business Cycle Theory|business cycles]]) and debases the [[means of exchange]].<ref>[http://www.marketoracle.co.uk/Article25212.html The Faults of FRB], Thorsten Polleit</ref> They also argue that if debts were ever paid back, there would be no money and the economy would collapse in a debt-deflation trap.<ref>[http://www.youtube.com/watch?v=jqvKjsIxT_8 Money As Debt]</ref> They therefore argue the system is ''inherently unstable'', requiring constantly increasing injections of debt just to avoid deflationary collapse.<ref>[http://www.youtube.com/watch?v=jqvKjsIxT_8 Money As Debt]</ref> They claim this is ultimately unsustainable.<ref>[http://www.youtube.com/watch?v=jqvKjsIxT_8 Money As Debt]</ref><ref>[http://www.youtube.com/watch?v=HZAzBDDnhwg Rich Dad Advisors Discuss Food Storage]</ref>

Many critics find it problematic that banks "create money out of nothing" and consider this fundamentally immoral, akin to [[counterfeiting]]<ref>[http://www.youtube.com/watch?v=QIBFvikcl7g Stacy Herbert and Max Keiser: Flaming Banks] Max Keiser Quote: "Banks counterfeit money. Bernanke, Geithner... anyone in the banking business is just a... just an out of control, rogue, counterfeiting, naked short selling ''weasel''."</ref> and/or [[embezzlement]].<ref>[http://www.dailypaul.com/node/119914 Ron Paul video - fractional reserve banking is fraudulent]</ref><ref name="Paul_End" /><ref>[http://www.marketoracle.co.uk/Article25212.html The Faults of FRB], Thorsten Polleit</ref>

Some also link the alleged negative effects of fractional reserve banking with central banking<ref>[http://www.zerohedge.com/article/guest-post-qe-end-america-we-know-it QE Is The End Of America], ZeroHedge</ref> and a government-enforced "paper" or [[fiat currency]],<ref>[http://www.marketoracle.co.uk/Article27768.html The Federal Reserve Note Is Dead], Jeff Berwick</ref> which they claim allows the practice of fractional reserve banking to continue without a "natural" limitation on the growth of the [[money supply]], thereby causing inherently unsustainable "[[bubble (economics)|bubbles]]" in asset and capital markets, which are vulnerable to Ponzi-like speculation by highly leveraged [[hedge funds]] and other bank agents.<ref name="Paul_End" /><ref>[http://www.debtdeflation.com/blogs/2009/12/23/mish-on-the-fictional-reserve-system/ MISH on the Fictional Reserve System], Steve Keen</ref><ref>[http://mises.org/store/Money-Bank-Credit-and-Economic-Cycles-P290C0.aspx Money, Bank Credit and Economic Cycles], Jesus Huerta de Soto, Mises Institute ISBN: 978-1-933550-39-8</ref><ref name="books.google.com">{{cite book |last= Brown |first= Ellen H. |title= Web of Debt |url= http://books.google.com/books?id=ILMGrEC524UC |accessdate= 2007-12-15 |year= 2007 |publisher= Third Millennium Press |location= Baton Rouge, Louisiana |isbn= 0979560802 }}</ref><ref name="death"/><ref name="monetary.org">[http://www.monetary.org/lostscienceofmoney.html Stephen A. Zarlenga, ''The Lost Science of Money'' AMI (2002)]</ref><ref>[http://mises.org/story/3108 Sound Money], Lew Rockwell</ref><ref>[http://mises.org/story/1971 Our Money Madness], Lew Rockwell</ref><ref>[http://mises.org/rothbard/genuine.asp The Case for a Gold Dollar], Murray Rothbard</ref><ref name="twilight"/><ref>[http://www.marketoracle.co.uk/Article25212.html The Faults of FRB], Thorsten Polleit</ref>

Reformist economists such as [[Murray Rothbard]] support a "full reserve" banking system and criticize [[fractional reserve banking]] as inherently fraudulent.<ref>[http://mises.org/daily/5185/The-Need-for-100-Reserves The Need for 100% Reserves], Frank D. Graham</ref> [[Murray Rothbard]] held this view very strongly throughout his life.<ref name="Paul_End" /><ref>[http://www.marketoracle.co.uk/Article25212.html The Faults of FRB], Thorsten Polleit</ref> Other reformist economists are more tolerant of fractional-reserve banking and support [[free banking]] instead of full reserve banking.<ref>[http://books.google.com/books?id=DFv6OzeBWpQC&pg=PP3&dq=steven+horwitz++banking&sig=VZasp_8pGVvpQsFKMI3W9yp4AlM#PPA231,M1 Microfoundations and Macroeconomics: An Austrian Perspective], Steven Horwitz, pp. 223-232.</ref>

==Basic debate==

The economic, environmental and social effects arising from money creation through fractional-reserve banking have been subject to much heated political debate for well over two centuries.<ref name="The Forgotten War"/><ref name="books.google.com"/><ref name="death"/><ref name="twilight"/><ref>[http://www.silverbearcafe.com/private/fracbank.html Antal E. Fekete, Fractional Reserve Banking Revisited]</ref><ref>[http://news.goldseek.com/GoldSeek/1297199137.php China Inflation and Gold], Darryl Robert Schoon</ref><ref>[http://www.zerohedge.com/article/guest-post-good-bad-and-ugly-part-3 The Good, the Bad and the Ugly], James Quinn</ref><ref>[http://www.marketoracle.co.uk/Article29255.html The Collapse of Paper Money], Darryl Robert Schoon</ref><ref>[http://www.goldismoney2.com/archive/index.php/t-524.html?s=d418ff253326772a09e1a8d992da7753 Venetian Bankers and the Dark Ages]</ref>

Many Austrian economists and monetary reformers focus on the combined use of [[fiat currency]], [[fractional-reserve banking]] and [[central banking]] as a negative feature of modern monetary systems.<ref>[http://www.youtube.com/watch?v=G1l7DY8kdz0 The Fed Unspun]</ref><ref>[http://mises.org/media/4014 The Economics of Legal Tender Laws], [[Jorg Guido Hulsmann]]</ref><ref>[http://mises.org/store/Meltdown-P557.aspx ''Meltdown''], Tom Woods, Regnery Press ISBN: 9781596985872</ref> These commentators use the term "debt-based monetary system" to refer to an economic system where [[money]] is created primarily through fractional-reserve banking techniques, using the banking system.<ref>[http://mises.org/daily/4569 What Does Debt-Based Money Imply for Interest Payments?], Robert Murphy</ref><ref>[http://mises.org/daily/4631 Is Our Money Based On Debt?], Robert Murphy</ref><ref name="speech"/> This form of money is called "debt-based" because as a ''condition of its creation'' someone must go into debt in order for the money to be created and it must be paid back plus interest at some time in the future.

To some commentators, this implies that as the [[money supply]] and the economy grows, the general populace becomes increasingly indebted at the same time due to the fact that debt grows in parallel with money supply growth, and increasing interest payments (from either taxpayers or indebted consumers) are needed to pay bondholders as the money supply grows.<ref>[http://www.marketoracle.co.uk/Article28533.html The Global Debt Crisis], Ellen Hodgson Brown</ref><ref name="death"/><ref name="twilight">[http://www.marketoracle.co.uk/Article4489.html Antal E. Fekete, The Twilight of Irredeemable Debt]</ref><ref name="The Forgotten War">[http://news.goldseek.com/GoldSeek/1192819378.php America's Forgotten War Against the Central Banks], Mike Hewitt</ref>

One argument posits that since debt and the interest on the debt can only be paid in the same form of money, the total debt (principal plus interest) can never be paid in a debt-based monetary system unless more money is created through the same process.<ref>[http://www.marketoracle.co.uk/Article28533.html The Global Debt Crisis], Ellen Hodgson Brown</ref><ref>[http://www.marketoracle.co.uk/Article38581.html The Trillion Dollar Coin: What You Really Need To Know], Rudy Avizuis</ref> For example: if 100 credits are created and loaned into the economy at 10% per year, at the end of the year 110 credits will be needed to pay the loan and extinguish the debt. However, since the additional 10 credits does not yet exist, it too must be borrowed. To some, this implies that the money supply must grow exponentially at the same rate as economic growth and compounding debt in order for the monetary system to remain solvent, as economic activity would be stifled with a static volume of money when interest became due, because in a static-money world no new money could be found to be taken out of circulation to allow debtors to pay outstanding interest to creditors.<ref name="death"/><ref name="twilight"/><ref>[http://globaleconomicanalysis.blogspot.com/2011/01/steve-keen-responds-to-world-economic.html Exponential Credit], MISH,</ref><ref>[http://blog.mises.org/17737/chancellor-not-enough-gold/ Not Enough Gold], Robert Blumen</ref><ref>[http://mises.org/daily/6391/Why-the-Greenbackers-Are-Wrong Why Greenbackers Are Wrong], Thomas Woods</ref>

Others argue that there is in fact no mathematical necessity for the stock of money in a debt-based system to grow, as the "turnover" or "flow" or "velocity" of money can increase to allow for compounding interest payments.<ref>[http://mises.org/daily/4569 What Does Debt-Based Money Imply for Interest Payments?], Robert Murphy</ref><ref>[http://www.debtdeflation.com/blogs/2010/10/08/ami-talks-in-flv-format/ AMI Conference 2010], Steve Keen</ref><ref>[http://www.debtdeflation.com/blogs/2010/11/05/solving-the-paradox-of-monetary-profits-2/ Solving the Paradox of Monetary Profits], Steve Keen</ref><ref>[http://www.zerohedge.com/news/2013-02-11/occams-gold-vs-rube-goldbergs-fiat Occam's Gold]</ref><ref>[http://mises.org/daily/6391/Why-the-Greenbackers-Are-Wrong Why Greenbackers Are Wrong], Thomas Woods</ref> However this does imply that population growth would need to be positive to encourage increased spending rates or some individual consumers would have to increase their rate of spending (and decrease their savings) to expand GDP sufficiently to allow the fixed stock of money to turnover sufficiently to pay for the interest compounding on top of the debt.<ref>[http://globaleconomicanalysis.blogspot.com/2011/01/steve-keen-credit-impulse.html The Credit Impulse], Steve Keen with commentary from MISH</ref><ref>[http://mises.org/daily/4569 What Does Debt-Based Money Imply for Interest Payments?], Robert Murphy</ref><ref>[http://www.debtdeflation.com/blogs/2010/10/08/ami-talks-in-flv-format/ AMI Conference 2010], Steve Keen</ref><ref>[http://www.debtdeflation.com/blogs/2010/11/05/solving-the-paradox-of-monetary-profits-2/ Solving the Paradox of Monetary Profits], Steve Keen</ref> This may mean that Ponzi-like dynamics bubble up in "pockets" of the economy with interest payments being allowed in a fixed money economy, but these debt-fuelled bubbles of higher spending or speculation would pop and die out relatively quickly as there would be no central bank to keep the bubbles alive with further money creation.<ref>[http://mises.org/daily/4569 What Does Debt-Based Money Imply for Interest Payments?], Robert Murphy</ref><ref>[http://globaleconomicanalysis.blogspot.com/2011/01/steve-keen-credit-impulse.html The Credit Impulse], Steve Keen with commentary from MISH</ref><ref>[http://www.zerohedge.com/news/2013-02-11/occams-gold-vs-rube-goldbergs-fiat Occam's Gold]</ref>

Gold, silver and other [[precious metals]] have in the past been used as money.<ref>[http://www.zerohedge.com/news/2013-02-11/occams-gold-vs-rube-goldbergs-fiat Occam's Gold]</ref> Because of the difficulty in increasing the supply of precious metals quickly, some [[monetary reform]]ers believe a return to the [[gold standard]], or a similar system of "hard" or "real" asset-backed currency, is the only way to stabilize the growth of the money supply. These monetary reformers often refer to the gold standard and [[silver standard]] as "sound money" or "honest money".<ref>[http://mises.org/daily/4860 Money: Sound and Unsound], Mark Thornton commentary on Joseph Salerno's book</ref><ref>[http://mises.org/daily/6391/Why-the-Greenbackers-Are-Wrong Why Greenbackers Are Wrong], Thomas Woods</ref>

==Main criticisms==

In a 2003 statement to the U.S. House of Representatives, Ron Paul stated "if unchecked, the economic and political chaos that comes from currency destruction inevitably leads to tyranny".<ref name="house.gov">[http://www.house.gov/paul/congrec/congrec2003/cr090503.htm Paper Ron Paul, Paper Money and Tyranny, Speech in U.S. House of Representative, September 5, 2003]</ref>

Some economic thinkers (primarily members of the [[Austrian School]]) and political commentators believe that a debt-based monetary system amounts to a subtle form of monetary "[[fraud]]" in that it creates money "costlessly" through the use of [[fractional-reserve banking]] techniques.<ref>[http://www.mises.org/rothbard/moneyback.asp Taking Money Back, by Murray Rothbard]</ref>

Michael Rowbotham is an active proponent of [[monetary reform]], and argues that this system of [[money supply]] is perverse and inherently monopolistic and "anti-democratic", as it creates an inflationary exponential growth imperative in the economy which leads to over-centralization and environmentally damaging and unstable over-consumption. Critics such as Rowbotham argue that the indebted are forced to induce new consumers to spend their way into debt so existing loans can be repaid with new debt-created money. Failure to achieve this goal results in [[foreclosure]] for those businesses and [[insolvency]] in the banking system that leads to economic collapse due to the sudden contraction of the money supply.<ref name="death"/><ref name="Ponzi Nation">[http://www.iimagazine.com/article.aspx?articleID=1234345 Ponzi Nation]</ref> This failure is inevitable due to the fact that, eventually, debt-saturated businesses and governments will no longer be able to force individuals into further debt due to the fact that they are already debt-saturated themselves. Once this point is reached, economic collapse is inevitable without wholesale debt repudiation.

Mark Anielski as well as some political thinkers such as Rowbotham and some economists (such as Hyman Minsky, Steve Keen and Mike Shedlock) argue that this system of money supply has characteristics similar to a [[pyramid scheme]], where the newly indebted are compelled to induce others into debt to pay off their own debts.<ref>[http://globaleconomicanalysis.blogspot.com/2011/01/steve-keen-credit-impulse.html The Credit Impulse], Steve Keen with commentary from MISH</ref><ref>[http://www.lin.ca/resource/html/arpa02/PC1-FertileObfuscation.pdf ''Fertile Obfuscation: Making Money Whilst Eroding Living Capital''], 34th Annual Conference of the Canadian Economics Association, Mark Anielski</ref> It is therefore argued by a number of monetary reformers that fractional-reserve banking and the associated exponential growth of money in the economy "forces" the economy towards indebted consumerism.<ref name="books.google.com"/>

Rowbotham argues that a major negative side-effect of the debt-based monetary system is its effect on agriculture, claiming that residential development produces by far the greatest continuous injection of debt money into modern debt-based economies because banks secure loans primarily with developed property and are therefore willing to issue more debt-money against property development than any other asset class. Therefore, significant super-normal profits can be generated by re-zoning agricultural land and replacing it with low-density [[House|housing]].<ref name="death"/>
If this is correct, this trend will lead to the destruction of fertile arable land, as farmers cannot compete to retain fertile arable land from property developers at the periphery of major population centers, and as this land is then progressively re-zoned for speculative new residential development. Rowbotham predicts that the global supply of fertile arable land will systematically and catastrophically decline as perverse monetary incentives inherent in the current debt-based system favor short-term speculative land development over long-term food security, leading to a broad decline in the quality and nutritional value of agricultural produce and, eventually, a dramatic increase in the prices of many "soft" commodities - which could then lead to actual food shortages for poorer segments of the world population.<ref>[http://www.marketoracle.co.uk/Article27874.html Horrific Global Food Crisis is Looming], Michael Snyder</ref><ref>[http://www.lewrockwell.com/blog/lewrw/archives/85588.html Inflation and Bacteria], Michael Rozeff</ref><ref>[http://www.lewrockwell.com/blog/lewrw/archives/76920.html The Corporate State and the Tapeworm Economy], Catherine Austin Fitts</ref><ref name="death"/><ref>[http://www.wsws.org/articles/2007/dec2007/food-d22.shtml Naomi Spencer, World Socialist Website, "Severe food shortages, price spikes threaten world population", 22 December 2007]</ref><ref>[http://www.preparednesspro.com/blog/food-shortage-series-part-1/ Food Shortage Series],Kellene Bishop</ref> This has been referred to as the problem of "Peak Everything".<ref>[http://globaleconomicanalysis.blogspot.com/2011/03/oil-prices-are-double-edged-sword-peak.html Peak Everything?], MISH</ref><ref>[http://www.marketoracle.co.uk/Article28218.html "Peak Everything"], Jeremy Grantham</ref>

If for any reason the monetary system broke down, urban populations (nominally "rich" but poor in terms of direct access to food supply) could find basic foodstuffs either rationed or contaminated with lower quality products - or even unavailable at any price, ultimately resulting in food security becoming a major public policy issue - particularly if combined with oil supply shortages or an oil price spike,<ref>[http://www.marketoracle.co.uk/Article27874.html Horrific Global Food Crisis is Looming], Michael Snyder</ref><ref>[http://jsmineset.com/2011/02/24/in-the-news-today-791/ Collapse]</ref> as major population centers worldwide are almost entirely reliant on mass transportation of food from distant (or even foreign) locations to survive day-to-day.<ref>[http://www.marketoracle.co.uk/Article27874.html Horrific Global Food Crisis is Looming], Michael Snyder</ref><ref name="death"/><ref>[http://www.preparednesspro.com/blog/food-shortage-series-part-1/ Food Shortage Series],Kellene Bishop</ref><ref>[http://www.wsws.org/articles/2007/dec2007/food-d22.shtml Severe food shortages, price spikes threaten world population]</ref><ref>[http://www.nytimes.com/2010/12/18/business/global/18yuan.html?hpw Inflation in China]</ref><ref>[http://www.lewrockwell.com/blog/lewrw/archives/76920.html The Corporate State and the Tapeworm Economy], Catherine Austin Fitts</ref><ref>[http://jsmineset.com/2011/02/24/in-the-news-today-791/ Collapse]</ref><ref>[http://www.rickackerman.com/2011/04/bee-die-off-threatens-global-food-calamity/ Bee Die Off]</ref><ref>[http://globaleconomicanalysis.blogspot.com/2011/03/oil-prices-are-double-edged-sword-peak.html Peak Everything?], MISH</ref><ref>[http://lewrockwell.com/bonner/bonner602.html We're all going to die]</ref> In addition, fresh water (an essential commodity that is subsidised in its production by state-controlled entities in virtually every country around the world) appears to be rapidly diminishing through pollution and over-use, further threatening the global food supply in coming decades, resulting in what some commentators are describing as a global water crisis of "horrific" proportions.<ref>[http://lewrockwell.com/rep2/water-crisis-coming.html 25 Signs That a Horrific Global Water Crisis Is Coming], Economic Collapse Blog</ref><ref>[http://www.zerohedge.com/news/2013-03-06/guest-post-30-facts-coming-water-crisis-will-change-everything 30 Facts]</ref> Yemeni is at the cutting edge of these issues, having a simultaneous and inter-related water and drug crisis caused by economic stagnation, unemployment and social inequality.<ref>[http://www.youtube.com/watch?v=b0PgJ4fqpIM Khat]</ref> Recent "scandals" involving Mad Cow Disease in Britain, <ref>[http://www.centerforfoodsafety.org/campaign/food-safety/mad-cow-disease/other-resources/a-consumers-guide-to-mad-cow-disease/history-of-rendering-cattle-cannibalism-in-the-usa/ History of Rendering]</ref> the fraudulent supply of horse meat sold as beef in Europe,<ref>[http://www.theaustralian.com.au/news/world/horsemeat-scandal-a-global-conspiracy/story-e6frg6so-1226574880191 Horsemeat a global conspiracy]</ref> rat poison found in Polish dairy products<ref>[http://www.wbj.pl/article-61746-scandals-rock-polish-food-exports.html Scandals Rock Polish Food Exports]</ref> and rat meat fraudulently sold as lamb in China<ref>[http://www.zerohedge.com/news/2013-05-03/forget-horse-meat-or-fake-tuna-rat-meat-being-sold-lamb-china Rat Meat Sold as Lamb in China]</ref> could be seen as the logical conclusion of Rowbotham's analysis, as economic pressures build to systematically debase the quality of inputs throughout the food chain as producers fight the effects of cost-push inflation and try to satisfy the need for ever-increasing productivity in the industrialized food industry by systematically debasing their products until they are not fit for human consumption, but are allowed to be consumed by the authorities anyway because of the urgent need to feed the general population within their shrinking incomes.<ref>[http://www.edmundconway.com/2013/02/horse-meat-scandal-the-economics/ Horse meat scandal: the economics]</ref><ref>[http://www.theaustralian.com.au/news/world/horsemeat-scandal-a-global-conspiracy/story-e6frg6so-1226574880191 Horsemeat a global conspiracy]</ref> For example, it is alleged that Mad Cow Disease was caused by British authorities reducing heating standards in the waste meat rendering process to reduce the cost of food production in Britain. Food scandals are becoming so prevalent a new term "Food Fraud" has become popular to describe this escalating phenomenon, mirroring monetary fraud in the wider economic system.<ref>[http://www.zerohedge.com/news/2013-05-03/forget-horse-meat-or-fake-tuna-rat-meat-being-sold-lamb-china Rat Meat Being Sold as Lamb in China]</ref> If Rowbotham's analysis is correct, these food contamination and food debasement scandals will become ongoing and endemic in coming years, but may be censored by the authorities in future to avoid widespread protests.<ref>[http://www.zerohedge.com/news/2013-02-11/guest-post-more-stealth-inflation-maker%E2%80%99s-mark-slashes-alcohol-content More Stealth Inflation]</ref><ref>[http://www.edmundconway.com/2013/02/horse-meat-scandal-the-economics/ Horse meat scandal: the economics]</ref><ref>[http://www.zerohedge.com/contributed/2013-02-14/hidden-inflation-everywhere-watered-down-bourbon-horse-meat-chili Hidden Inflation Everywhere]</ref><ref>[http://en.wikipedia.org/wiki/2008_Chinese_milk_scandal Chinese Milk Scandal]</ref> This has already occurred in China with authorities trying to censor reports of toxic melamine in Chinese milk products<ref>[http://en.wikipedia.org/wiki/2008_Chinese_milk_scandal Chinese Milk Scandal]</ref> and in the UK with British authorities downplaying or delaying information relating to the huge scale of the horse meat scandal.<ref>[http://www.youtube.com/watch?v=SxZtfi2pYNo&list=SPPszygYHA9K2ZtV_1KphSugBB7iZqbFyz&index=6 Horsemeat Burgers], Max Keiser</ref> Max Keiser has made a direct connection between stealth monetary debasement throughout the banking system and stealth debasement of inputs throughout the British food chain.<ref>[http://www.youtube.com/watch?v=SxZtfi2pYNo&list=SPPszygYHA9K2ZtV_1KphSugBB7iZqbFyz&index=6 Horsemeat Burger]</ref> Quality adjustments in official CPI measurements often ''reduce'' the rate of inflation by assuming quality ''improvements'' - however no government has taken into account these food scandals in ''increasing'' the effective rate of inflation by taking into account dramatic ''reductions'' in the quality of food production.<ref>[http://www.abs.gov.au/websitedbs/webfaq.nsf/home/consumer+price+index+faqs CPI FAQs]</ref><ref>[http://www.econ.rochester.edu/people/BilsPapers/growth_qje_revision_August_2008.pdf BLS paper on CPI adjustments for quality]</ref><ref>[http://www.zerohedge.com/news/2013-03-02/first-horsemeat-trading-now-59-tuna-sold-us-isn%E2%80%99t-tuna 59% Of Tuna Isn't Tuna]</ref> If the dramatic degradation in the quality of food production was fully taken into account, it is likely that "true" inflation would be measured far in excess of official figures, and may in some instances (such as with the UK horse meat scandal) be reaching something similar to hyperinflation in some years, as food that changes from "beef" to "horse meat" is effectively a tiny fraction of the quality of the product of only a few years or months ago.<ref>[http://www.youtube.com/watch?v=SxZtfi2pYNo&list=SPPszygYHA9K2ZtV_1KphSugBB7iZqbFyz&index=6 Horsemeat Burgers], Max Keiser</ref>

Others consider that the core problem is not food security, nor overpopulation, nor environmental destruction, nor excessive carbon emissions due to non-pricing of energy producing externalities, nor excessive "specialization" of labor in the midst of monetary dysfunction, but excessive government regulation, causing capital destruction.<ref>[http://mises.org/daily/5277/When-Capital-Is-Nowhere-in-View When Capital Is Nowhere In View], Jeffrey Tucker</ref><ref>[http://www.garynorth.com/public/8071.cfm Population Growth as Propaganda], Gary North</ref><ref>[http://www.marketoracle.co.uk/Article39449.html An Orwellian America], Gordon T Long</ref>

The fundamental problem with the current monetary system that all Austrian economists agree on is that in the midst of constant credit creation and monetary dysfunction is it ''impossible'' to know what unsustainable [[malinvestment]]s are taking place in the economy, except to acknowledge that they ''must'' be taking place somewhere in the midst of unsustainable credit growth.<ref>[http://www.goldensextant.com/SavingtheSystem.html Saving the System], Robert K. Landis</ref>

===Effects on economic health: Ponzi scheme dynamics===

According to Michael Rowbotham and many Austrian theorists the expansion of money through debt is unsustainable and necessarily fuels and creates [[Austrian Business Cycle Theory|economic bubbles]].<ref>[http://mises.org/daily/5567/Hayeks-Ghost-Haunts-the-World Hayek's Ghost Haunts the World], Jeffrey Tucker</ref> This concentrates wealth in the hands of private banks as the populace is forced into [[debt]] simply to own a home and educate their children, hoping that the loans can be repaid by others going into debt in ''greater amounts'' later to purchase the assets they themselves have purchased through incurring large amounts of personal debt.<ref name="death"/> However, debt expansion leads to price appreciation of assets through speculation as the financial market becomes riskier and this process is unsustainable in the long run, with the last cycle of indebted being wiped out when they cannot find anyone to buy the assets they themselves have purchased by going into massive debt. Doug Noland, Steve Keen, Edward Chancellor, Bill Bonner and many others have compared this type of market to an enormous State-sponsored global monetary [[Ponzi scheme]].<ref>[http://www.debtdeflation.com/blogs/2008/12/13/the-worlds-biggest-ponzi-scheme/ The World's Biggest Ponzi Scheme], Steve Keen</ref><ref>[http://www.iimagazine.com/article.aspx?articleID=1234345 Ponzi Nation,"Who is Hyman Minsky?", para 6]</ref><ref>[http://www.marketoracle.co.uk/Article26678.html One Gargantuan Ponzi Scheme], Paul Hallyer</ref><ref>[http://prudentbear.com/dmdocuments/HowCouldIrvingFisherHaveBeenSoWrong.pdf How Could Irving Fisher Have Been So Wrong?], Doug Noland</ref><ref>[http://globaleconomicanalysis.blogspot.com/2010/08/former-fed-governor-mishkin-paid-124000.html Mishkin], MISH</ref><ref>[http://www.lewrockwell.com/bonner/bonner467.html Warning], Bill Bonner</ref>

The bust phase of this Ponzi-like [[business cycle]] occurs when "debt-based" money growth cannot continue because the debt levels are already at saturation levels, meaning growth in debt money slows or contracts, catching newly indebted businesses and consumers who are left out of the growth cycle, triggering a combined liquidity and solvency crisis when markets seize up due to a collapse in the artificially-supported prices in financial markets.<ref name="death"/><ref name="Ponzi Nation"/>

===Effects on the environment===
There are also critics in the left-wing and environmentalist camps who contend fractional reserve banking (by creating a necessity for indefinite [[economic growth]]) leads to environmental destruction and a sudden, catastrophic depletion of the earth's natural resources as the unsustainable, exponential consumption of the world's scarce natural resources reaches its inevitable limits.<ref>David Korten, ''Agenda For A New Economy'', Berret-Koehler, 2009</ref><ref>[http://www.monbiot.com/archives/2004/10/06/no-longer-obeying-orders/ George Monbiot], about five sixths of the way down</ref>

===Inherent problems with the system===

Some monetary reformers predict that there will be an increased incidence of financial crises in the developed world, as economic and population growth inevitably slow and as the success of financial sector lobbying results in increased tax loopholes and a reduction in effective redistributive [[tax]]es which, combined with the debt-legacy of the [[welfare state]], allows an intense and unsustainable concentration of wealth and political power in the financial services sector.<ref name="death">{{cite book |last= Rowbotham |first= Michael |title= The Grip of Death: A Study of Modern Money, Debt Slavery and Destructive Economics | year= 1998 |publisher= Jon Carpenter Publishing |isbn= 9781897766408 }}</ref><ref>[http://www.youtube.com/watch?v=TdVc40Mc9cQ&feature=related Andrew Sheng, INET presentation]</ref><ref>[http://mises.org/daily/6653/How-Central-Banks-Cause-Income-Inequality Central Banks Cause Income Inequality]</ref>

Some monetary reformers argue that perverse incentives in the financial services industry lead to collusive relationships between governments and bankers which are economically and socially destablizing in the long run.<ref>[http://mises.org/media/4014 The Economics of Legal Tender Laws], Jorg Guido Hulsmann</ref>

Given that the financial system requires ever higher levels of indebtness from the general populace for its solvency, it is vital that the indebted "victims" who must sink deeper into debt for the system to survive do so voluntarily and willingly and are not made aware of the consequences of purchasing consumables with debt money.<ref name="death">{{cite book |last= Rowbotham |first= Michael |title= The Grip of Death: A Study of Modern Money, Debt Slavery and Destructive Economics | year= 1998 |publisher= Jon Carpenter Publishing |isbn= 9781897766408 }}</ref> Some isolated politicians have previously highlighted the fact that mainstream media organizations appear to downplay or minimize the seriousness of deficit spending by government and debt-sourced spending of all kinds.<ref>[http://www.senate.gov/~budget/democratic/statements/2005/fs_reconciliationfloorstmt102005.pdf Speech by Senator Kent Conrad (D-ND) on October 20, 2005 regarding the "misleading" reporting of deficit spending by the mainstream media]</ref> Euphemisms for debt and personal and national bankruptcy associated with debt have been developed to delay a mass panic away from government bonds or debt. For example, the associated growth of debt-based derivatives during the upward phase of the debt money cycle was referred to as "[[innovation]]" in financial markets.<ref>[http://www.nytimes.com/2007/12/03/opinion/03krugman.html?em&ex=1196917200&en=ac60abcdbd977d07&ei=5087%0A Innovating Our Way to Financial Crisis, by Paul Krugman]</ref>

[[Bankruptcy]] laws differ to a small degree in different jurisdictions but in all developed economies unpaid debt results in legal penalties, property confiscation on behalf of the creditor and income [[sequestration]]. Although in Christian, Jewish and Muslim religious practice there have been traditions of debt relief or laws against [[usury]], in no modern Western jurisdiction are any debts periodically forgiven or cancelled in recognition of the inherent impossibility of repaying debts in circumstances where the debt-based monetary cycle has inevitably resulted in too little new [[debt money]] being injected into the [[money supply]] to pay for the currently outstanding debts.<ref>[http://www.nakedcapitalism.com/2007/11/new-bankruptcy-law-backfires-by.html Bankruptcy law backfires]</ref>

On a national level, if the issuance of [[government bonds]] becomes unsustainable, sovereign [[bankruptcy]] can occur - and has occurred many times in history.<ref>[http://mises.org/daily/4869 Can the Fed Become Insolvent?], Robert Murphy</ref><ref>[http://elainemeinelsupkis.typepad.com/money_matters/2007/10/greenspaniel-an.html Greenspaniel and U.S. bankruptcy]</ref><ref>[http://www.prudentbear.com/index.php/thebearslairview?art_id=10493 Dee-Fault!], Martin Hutchinson, Prudent Bear</ref> [[Sovereign debt]] crises due to the inability of nations to pay interest on [[government bonds]] have occurred frequently and regularly in the third world and less frequently (every 30 years or so) in the first world as a result of high levels of unsustainable public debt - often because private debts are assumed by a corrupt government through large private bank bailouts.<ref>[http://www.dailymail.co.uk/debate/article-1331076/Ireland-bailout-Lets-frank-7bn-bunch-liars-crooks-bunglers.html Ireland Bailout], Alex Brummer</ref><ref name="Willie_Misdiagnosis">[http://www.marketoracle.co.uk/Article24543.html QE2 and the Great Economic Misdiagnosis], Jim Willie, November 24, 2010.</ref> The [[Latin American debt crisis]] is an example of sovereign debt levels becoming unsustainable, resulting in a [[currency crisis]] and economic collapse, as [[interest rates]] rise precipitously due to the inability of the national government to attract financiers to purchase new [[government bonds]] to inject new debt money into the ailing economy.<ref name="Willie_Misdiagnosis" />

At such times, it is the responsibility of the [[IMF]] to come in as a kind of supranational [[central bank]] to mediate between the national government and international financiers.<ref>[http://globaleconomicanalysis.blogspot.com/2011/05/imf-chief-pulled-from-plane-in-new-york.html Time to Dissolve the IMF], MISH</ref> The role of the [[IMF]] as [[central bank]] to the world has similar responsibilities and risks inherent in [[central bank]]ing which are described below in relation to the role of the [[Federal Reserve]]. If the [[IMF]] repeatedly intervenes to save financiers from loss when sovereign bankruptcy occurs, this has a tendency to induce [[moral hazard]] and can encourage the financing of reckless government spending and borrowing.<ref>[http://www.rgemonitor.com/41 IMF Reform and International Lender of Last Resort, RGE Monitor]</ref><ref>[http://info.interactivist.net/article.pl?sid=02/11/07/199213&mode=thread&tid=8 Banking Bunkum, by Henry C.K. Liu]</ref><ref name="Willie_Misdiagnosis" />

A [[single currency]] regime such as the [[Euro]] can mask national liquidity or solvency crises, by ensuring that a national currency is not quickly exchangeable for another, thereby restricting the ability of national governments to depreciate their currencies and cutting off the possibility that the real value of [[government bond]] interest repayments could decline relative to other currencies.<ref>[http://www.dailymail.co.uk/news/article-1316442/Anglo-Irish-Bank-bail-Will-Irish-economic-meltdown-hit-UKs-fragile-recovery.html Irish Meltdown], UK Mail On-line,</ref><ref>[http://www.marketoracle.co.uk/Article24459.html Ireland Bailout Consequences for Britain, Portugal Next?], Nadeem Walayat</ref><ref name="Willie_Misdiagnosis" /><ref>[http://news.goldseek.com/RichardDaughty/1192374060.php The Mogambo Theory of Currency Relativity]</ref><ref>[http://www.youtube.com/watch?v=IvJEJEGzeU8&feature=player_embedded#! Putin ditches dollar], RTTV</ref> This may however increase the risk of bond default where indebted national governments cannot pay back the interest payments in the denominated common currency.<ref>[http://www.dailymail.co.uk/news/article-1316442/Anglo-Irish-Bank-bail-Will-Irish-economic-meltdown-hit-UKs-fragile-recovery.html Irish Meltdown], UK Mail On-line,</ref><ref>[http://blog.mises.org/15129/bagus-explains-the-ecb-and-the-euro/ The Tragedy of the Euro], Philipp Bagus</ref>

===Types of downturns===
{{main|Austrian Business Cycle Theory}}
[[Austrian Business Cycle Theory]] states that artificially low interest rates set by any coercive price-fixing entity will inevitably stimulate malinvestment in the wrong capital projects which will inevitably lead to an unsustainable boom followed by a bust.<ref>[http://mises.org/daily/5164/The-Cure-Low-Interest-Rates-Is-the-Disease The Cure (Low Interest Rates) Is The Disease], Thorsten Polleit</ref> However, the precise nature of the downturn and the way in which losses are allocated within the economy are both dependent on the actions government and bankers take to forgive debt or control credit and there are two main kinds of debt money contraction that can cause a collapse in the value of inflated assets.

A "credit squeeze" occurs where new debt money is difficult to access without a high [[credit rating]]. At such times marginal borrowers, or those who have borrowed at the end of any debt-induced asset bubble, get "squeezed" out of further borrowing and a contraction in the growth of new debt money occurs, triggering a slow down in the growth of inflated assets. Those assets can then be "harvested" by the [[private bank]]s through widespread [[foreclosure]] or [[bankruptcy]] and re-sold to those with the money to buy the distressed assets.<ref name="marketoracle.co.uk">[http://www.marketoracle.co.uk/Article2882.html Market Fundamentalism, by Richard C. Cook]</ref>

A "credit crunch" occurs where new debt money is not available at any [[interest rate]] - even for those with previously acceptable credit ratings - due to widespread insolvency in the banking system. At such times, it is the banking system itself that is [[insolvent]] and other financial institutions (including overseas financiers) become reluctant to lend to the domestic banking system, resulting in the domestic banking system being unable to issue loans even to credit worthy borrowers.<ref>[http://en.wikipedia.org/wiki/Credit_crunch Credit crunch], Wikipedia definition</ref>

At any stage during the downward spiral of a "credit crunch", the [[central bank]] in a modern economy can try to save the system from complete economic meltdown by purchasing (either indefinitely or temporarily) the failed debts of the private banks.<ref>[http://www.youtube.com/watch?v=PTUY16CkS-k&feature=player_embedded#! Quantitative Easing Explained]</ref><ref>[http://www.marketoracle.co.uk/Article24489.html Does the Fed Create Money?] Michael Pento</ref><ref>[http://www.telegraph.co.uk/money/main.jhtml?view=DETAILS&grid=A1YourView&xml=/money/2007/12/19/ccom119.xml ECB's mind-numbing cash injection]</ref> This involves swapping depreciating "failed" assets with hard cash, thereby allowing the banks to maintain their net asset position and continue to give the impression of solvency to their auditors and depositors. However, doing so results in cash being transferred to the private banks in exchange for [[bad debt]], thereby violating the general economic precept to avoid [[moral hazard]] and effectively makes liquid the failed lending decisions of the [[private bank]]s.<ref>[http://globaleconomicanalysis.blogspot.com/2011/06/prudently-managed-banks-victimized-by.html Prudent Banks Victimized], MISH</ref><ref>[http://www.rgemonitor.com/blog/roubini/228924/ Privatizing Profits and Socializing Losses, by Nouriel Roubini]</ref> In the U.S. banking system this is called "opening the Fed discount window", where the [[Federal Reserve]] temporarily purchases the failed investment portfolios of distressed private banks in exchange for cash. However, this rescue measure may only delay, rather than avoid, the realization of losses in the banking system, as the central bank cannot "force" new borrowing into the system to inject new debt money into the money supply. Somebody has to be a [[counterparty]] to borrow the debt money that is being offered. If all market participants realize a "[[bubble (economics)|bubble]]" has formed in assets markets, there will be few (or no) buyers for new debt money, as no one wants to borrow to buy inflated assets no one else will buy. Money markets can therefore remain illiquid even with intense [[central bank]] support.<ref>[http://www.prudentbear.com/index.php/creditbubblebulletinview?art_id=10511 Favorable or Unfavorable], Doug Noland, Prudent Bear</ref>

Furthermore, banks can go bust even with intense central bank support, if the issue is not one of liquidity, but one of solvency.<ref>[http://www.ft.com/cms/s/0/233ae764-abef-11dc-82f0-0000779fd2ac.html Central Banks have No Plan]</ref><ref>[http://www.rgemonitor.com/blog/roubini/233120 Central Banks get desperate]</ref><ref>[http://www.youtube.com/watch?v=VMngK0t5WkY $20 Trillion in Bad Debt], Max Keiser</ref><ref>[http://www.marketoracle.co.uk/Article27686.html Bernanke's QEx Money Printing Box], Gordon T. Long</ref>

===Market meddling and pushing on a string===
Some monetary economists describe the opening of the Fed discount window after the bursting of an asset bubble and swapping of "junk" with new money as "pushing on a piece of string", as this measure does not solve the key problem – creating new credit (or debt money) to keep up the growth in the money supply and maintain the required level of liquidity in credit markets.<ref>[http://www.mises.org/story/2695 Don't Discount the Fed Discount Window]</ref><ref>[http://www.federalreserve.gov/Pubs/FEDS/2004/200401/200401pap.pdf Monetary Policy in Deflation: The Liquidity Trap in History and Practice]</ref> This is because unlimited central bank money and low interest rates ''allow'' credit creation, but cannot ''force'' it into the system. In order for any new debt money to be created, someone has to ''borrow'' the excess reserves in order for the money to be injected into the system. With an endogenous money system, money is only created if someone wants to borrow money from a bank. If corporations and individuals are already heavily indebted (or insolvent after the bursting of a debt-induced bubble) there are no credit-worthy borrowers to lend to. This means there are no new buyers at the margin to keep asset prices at high levels. If there are no new marginal buyers, "liquidity" - or debt growth - dries up and volumes and prices drop suddenly, forcing liquidation and creating a sudden cascading effect in highly leveraged markets very similar to the end of an unsustainable Ponzi scheme. The only ones able to stimulate the economy are the tiny minority of bankers who have been bailed out by the central bank and even if they spent lavishly to try to "help" the economy, this would in no way compensate for the lack of spending in the general economy.

To encourage fresh borrowing, central banks generally combine these rescue measures with an interest rate cut to encourage more new borrowing to allow the existing (failed) debts to be [[liquidate]]d at or close to their original value. When [[Alan Greenspan]] repeatedly resorted to this tactic to revive illiquid [[money market]]s this became known in the market as the "[[Greenspan put]]", as the effect of these repeated reductions in interest rates was similar to a [[put option]] in the [[stockmarket]], insuring [[bank]]s' lending mistakes would be covered up by the Federal Reserve.<ref>[http://www.iie.com/publications/wp/02-1.pdf Moral Hazard and the "Greenspan Put"]</ref>

When interest rates cannot go any lower (the so-called "zero bound" monetary problem) and people still will not - or cannot - load themselves up with more debt, then to stave off a collapse of market prices due to the drying up of marginal buyers at inflated debt-saturated prices central banks have resorted to "Quantitative Easing" - which is the abandonment of interest rate setting and the targeting of bulk purchases of bank assets to artificially pump up their price and keep the banking system solvent.<ref>[http://www.marketoracle.co.uk/Article38855.html QE for Dummies], Dr Martenson</ref> In addition, the Keynesian solution is to run large public deficits and indebt future generations (who, they hypothesize, are more likely to be able to pay through increased future growth).<ref>[http://www.zerohedge.com/news/2013-02-09/paul-krugman-we-should-kick-can-down-road-it%E2%80%99s-responsible-thing-do "Kick the Can Down the Road"]</ref><ref>[http://www.nytimes.com/2010/12/26/business/26view.html?_r=1&scp=1&sq=shiller&st=cse Stimulus Without More Debt], Robert Shiller</ref> Fabian socialists, and Keynesian economists such as Paul Krugman and Robert Shiller, argue that governments must take charge of the responsibility of spending more (and taking on more debt) on behalf of the public (who are too fearful to take on more debt themselves) in order to compensate for the immediate and urgent ''present'' insufficiency in total private consumption.<ref>[http://www.zerohedge.com/news/2013-02-09/paul-krugman-we-should-kick-can-down-road-it%E2%80%99s-responsible-thing-do "Kick the Can Down the Road"]</ref><ref>[http://www.nytimes.com/2011/09/05/opinion/the-fatal-distraction.html?src=me&ref=general The Fatal Distraction], Paul Krugman</ref><ref>[http://www.nytimes.com/2010/12/26/business/26view.html?_r=1&scp=1&sq=shiller&st=cse Stimulus Without More Debt], Robert Shiller</ref><ref>[http://mises.org/daily/5616/Is-the-Need-for-Stimulus-Undeniable Is the Need for Stimulus "Undeniable"?], Hunter Lewis</ref> Paul Krugman and Robert Reich are prominent advocates of the policy of spending trillions of government money to help stimulate the economy, if spending billions does not work.<ref>[http://www.realclearpolitics.com/video/2011/09/01/reich_government_has_to_spend_more_to_get_out_of_debt.html Reich: Government Has To Spend More To Get Out Of Debt]</ref><ref>[http://www.nytimes.com/2010/06/21/opinion/21krugman.html?dbk Budget Deficits], Paul Krugman</ref><ref>[http://globaleconomicanalysis.blogspot.com/2010/10/krugman-and-inevitable-i-told-you-so.html Krugman], MISH</ref><ref>[http://krugman-in-wonderland.blogspot.com/2010/11/inflation-prisoner.html The Inflation Prisoner], William Anderson</ref> For economists such as Paul Krugman, if the "more and more government spending" solution does not work initially, it is a sign that not enough government money has been spent.<ref>[http://www.lewrockwell.com/sowell/sowell44.1.html Fed Up With the Fed?], Thomas Sowell</ref><ref>[http://www.nytimes.com/2010/12/20/opinion/20krugman.html?hp When Zombies Win], Paul Krugman, NY Times</ref><ref>[http://globaleconomicanalysis.blogspot.com/2010/10/krugman-and-inevitable-i-told-you-so.html Krugman], MISH</ref> It is his view that the "deflationary" Japanese recession from 1991/2 could have been cured by the Japanese government going into even more debt than the current net debt to GDP ratio of 110%.<ref>[http://www.nytimes.com/2010/06/21/opinion/21krugman.html?dbk Budget Deficits], Paul Krugman</ref><ref>[http://www.economist.com/node/15867844 Japan's debt-ridden economy], The Economist</ref> Although some commentators have puzzled over exactly which group Krugman blames for the crisis, Krugman repeatedly calls for the government "to do more" and "spend more" as the "responsible" way out of the crisis, regardless of the true culprits or cause of the crisis.<ref>[http://www.zerohedge.com/news/2013-02-09/paul-krugman-we-should-kick-can-down-road-it%E2%80%99s-responsible-thing-do "Kick the Can Down the Road"]</ref><ref>[http://www.nytimes.com/2011/08/08/opinion/credibility-chutzpah-and-debt.html?_r=1&hp Credibility, Chutzpah and Debt], Paul Krugman</ref><ref>[http://www.thedailybell.com/2271/Shock-Krugman-Turns-on-Elites.html Shock Krugman Turns on Elites], The Daily Bell</ref><ref>[http://www.nytimes.com/2011/04/11/opinion/11krugman.html?_r=2&hp Obama Is Missing], Paul Krugman</ref> When pressed to find culprits he identifies "extremist" Republicans and, somewhat paradoxically, those who call for ''fiscal restraint'' to be the real source of the debt crisis and the downgrading of US sovereign debt.<ref>[http://www.nytimes.com/2011/08/08/opinion/credibility-chutzpah-and-debt.html?_r=1&hp Credibility, Chutzpah and Debt], Paul Krugman</ref> How ''increasing'' the debt load will solve the debt problem is never explained, apart from Krugman repeatedly stating that the "long-term" debt problem is not as important as the immediate and urgent "lack of spending" problem.<ref>[http://www.zerohedge.com/news/2013-02-09/paul-krugman-we-should-kick-can-down-road-it%E2%80%99s-responsible-thing-do "Kick the Can Down the Road"]</ref> Krugman has never advocated the simple solution of debt default as the way to solve the debt crisis, despite de-emphasizing the scale of the debt by arguing that we (mostly) "owe it to ourselves".<ref>[http://krugman.blogs.nytimes.com/2011/12/28/debt-is-mostly-money-we-owe-to-ourselves/ Debt is mostly money we owe to ourselves]</ref> If this was the case, debt default would be the easiest solution. On the other hand, Paul Krugman has yet to clearly identify a country or a time when government spending became excessive or was out of control and resulted in too much accumulation of debt and malinvestment during an economic slowdown. He has intimated that, perhaps, the Greek government may have spent too much, but he treats that as an isolated case and not applicable to the rest of Europe or the United States, despite some countries having comparable debt levels to Greece's.<ref>[http://www.nytimes.com/2011/09/12/opinion/an-impeccable-disaster.html?_r=1&hp An Impeccable Disaster], Paul Krugman</ref> He has also never explained or written about what happens ''after'' government stimulus spending inevitably stops, which Austrians argue would inevitably result in an even bigger slump if it is not continually replaced with something similar or bigger.<ref>[http://krugman.blogs.nytimes.com/2013/05/09/the-moral-equivalent-of-space-aliens/ Space Aliens], Paul Krugman. Quote: "To almost everyone’s surprise, Japan — Japan! — has emerged as the advanced country most willing to break with austerian orthodoxy and try a combination of aggressive monetary and fiscal stimulus. The verdict on Abenomics is, of course, still out, although early indications are good. But how did this happen? David Pilling , writing in the FT, suggests that it was the double shock of the 2011 tsunami and China’s overtaking of Japan as the number 2 economy by market value. These shocks, he argues, broke through the fatalism and convinced the Japanese elite that something must be done. Long-time readers know that I once joked that what we needed in America was a fake threat from space aliens, which would jolt us into action on stimulus; '''if the aliens were later revealed as a hoax, no matter'''. Well, it looks as if Japan has found the moral equivalent of space aliens. Good for them." (emphasis added)</ref> If further attempts at artificial government-induced "stimulus" ''are'' attempted, Austrians argue that this pointless exercise would simply further distort capital structures throughout the economy. They therefore see the slump as curative, even if it results in bank runs and financial crises. They see light at the end of the depression, once the re-pricing of capital goods and financial assets returns the economy to a sound, stable footing - provided ''no bailouts occur, debts are liquidated and reduced or cancelled and provided asset prices are permitted to fall''.<ref>[http://www.zerohedge.com/news/guest-post-keynesian-solutions-after-total-failure-try-try-again Keynesian Solutions Total Failure]</ref><ref>[http://dailyreckoning.com/the-pain-of-restoring-investor-confidence/ The Pain of Restoring Investor Confidence], Bill Bonner</ref><ref>[http://dailyreckoning.com/government-spending-and-the-path-to-money-printing/ Government Spending and the path to Money Printing], Bill Bonner</ref><ref>[http://www.prudentbear.com/index.php/featuredcommentaryview?art_id=10485 Krugman Is Eating America Alive], Neeraj Chaudhary, Prudent Bear</ref><ref>[http://www.marketoracle.co.uk/Article25163.html Keynesian models], Robert Murphy</ref><ref>[http://krugman-in-wonderland.blogspot.com/2010/11/inflation-prisoner.html The Inflation Prisoner], William Anderson</ref><ref>[http://www.lewrockwell.com/north/north925.html Yes, Virginia, There Really Is a Free Lunch], Gary North</ref><ref>[http://mises.org/daily/5257/They-Want-Us-to-Love-the-Fed They Want Us to Love the Fed], William L. Anderson</ref><ref>[http://lewrockwell.com/rockwell/many-collapses-of-keynesianism189.html The Many Collapses of Keynesianism], Lew Rockwell,</ref>

Although there is active debate as to whether Keynesian "stimulus" policy (spending money and thereby indebting future generations, with the government spending debt-sourced money on projects the private sector would not touch) can actually help the economy long term,<ref>[http://www.zerohedge.com/news/2014-01-30/fed-has-fingers-thumbs-scales-finance-grant-tells-santelli-and-it-will-end-badly It Will End Badly]</ref><ref>[http://www.mises.org/daily/6357/Feds-Policies-Expose-Mainstream-Fallacies Mainstream Fallacies], Frank Shostak</ref><ref>[http://www.zerohedge.com/news/guest-post-keynesian-solutions-after-total-failure-try-try-again Keynesian Solutions Total Failure]</ref><ref>[http://dailyreckoning.com/the-pain-of-restoring-investor-confidence/ The Pain of Restoring Investor Confidence], Bill Bonner</ref><ref>[http://dailyreckoning.com/government-spending-and-the-path-to-money-printing/ Government Spending and the path to Money Printing], Bill Bonner</ref><ref>[http://www.prudentbear.com/index.php/featuredcommentaryview?art_id=10485 Krugman Is Eating America Alive], Neeraj Chaudhary, Prudent Bear</ref><ref>[http://www.marketoracle.co.uk/Article25163.html Keynesian models], Robert Murphy</ref><ref>[http://krugman-in-wonderland.blogspot.com/2010/11/inflation-prisoner.html The Inflation Prisoner], William Anderson</ref><ref>[http://www.lewrockwell.com/north/north925.html Yes, Virginia, There Really Is a Free Lunch], Gary North</ref><ref>[http://mises.org/daily/5257/They-Want-Us-to-Love-the-Fed They Want Us to Love the Fed], William L. Anderson</ref><ref>[http://lewrockwell.com/rockwell/many-collapses-of-keynesianism189.html The Many Collapses of Keynesianism], Lew Rockwell,</ref> there is no argument that this would undoubtedly help the present group of private bankers, as increased income from the interest payments on new government bond issuance offsets the decline in private sector debt and allows banks to survive when otherwise they may face collapse due to the fatal impairment of their balance sheets through private debt write-offs after an unsustainable debt-fuelled bubble bursts.<ref>[http://georgewashington2.blogspot.com/2010/08/quantitative-easing-wont-help-economy.html QE won't help the economy]</ref><ref>[http://moneymorning.com/2010/11/19/federal-reserves-quantitative-easing-strategy-save-the-us-economy/ QE won't save the economy]</ref>

As government debt is effectively an asset on the books of the banks, increasing Treasury bond issuance necessarily increases the profitability and net asset position of the debt-issuing banks - at least until government insolvency or mass tax evasion renders the value of those bonds worthless.<ref>[http://www.marketoracle.co.uk/Article25313.html Asset Speculation and Capital Destruction], Jim Willie</ref><ref>[http://www.prudentbear.com/index.php/featuredcommentaryview?art_id=10485 Krugman Is Eating America Alive], Neeraj Chaudhary, Prudent Bear</ref>

Perhaps in recognition that increasing debt to solve a debt crisis does not work even in the short term, in early 2013 Krugman resorted to advocating the coining of a debt-free trillion dollar platinum coin to solve the debt crisis and revive the economy.<ref>[http://www.thenewamerican.com/economy/economics/item/14238-obama%E2%80%99s-trillion-dollar-coin-exposes-federal-reserve-scam Obama’s Trillion-Dollar Coin Exposes Federal Reserve Scam], Alex Newman, ''New American''</ref><ref>[http://webofdebt.wordpress.com/2013/01/18/the-trillion-dollar-coin-joke-or-game-changer/#more-5323 The Trillion Dollar Coin], Ellen Hodgson Brown</ref> Some Austrians have argued Krugman's support of the trillion dollar coin is the logical ''reductio ad absurdum'' of Keynesian economics.<ref>[http://bastiat.mises.org/2013/01/trillion-dollar-coins-and-alien-invasions/ Trillion Dollar Coins and Alien Invasions], Daniel Sanchez</ref>

===Inequities in the debt-based monetary system===
Many inequities arise because of the damage an overly leveraged financial system and big spending government can have on the real economy.<ref>[http://www.marketoracle.co.uk/Article26581.html Ten Reasons The Banksters Got Away With It], Danny Schechter</ref><ref>[http://www.marketoracle.co.uk/Article28949.html United States of Denial], James West</ref> The standard government strategy to help the banks out of the "tailspin" of an insolvency crisis follows a standard chronology:

The government first tries to stimulate the economy and spend money into the markets directly without individuals needing to borrow and spend, thereby "inflating" its way out of economic crisis by causing asset prices to rise and bank balance sheets to appear solvent. It currently does this principally by borrowing newly created money from the central bank and then spending this new money on projects that the private sector is not already engaged in.<ref>[http://www.marketoracle.co.uk/Article25964.html QE is Nothing New], Mike Hewitt</ref><ref>[http://www.mises.org/daily/6357/Feds-Policies-Expose-Mainstream-Fallacies Mainstream Fallacies], Frank Shostak</ref>

Unfortunately, there is no easy solution to an economy-wide insolvency crisis caused by excessive credit expansion.<ref>[http://www.zerohedge.com/news/2013-11-07/marc-faber-warns-karl-marx-was-right Karl Marx Was Right], Marc Faber</ref><ref>[http://www.prudentbear.com/index.php/creditbubblebulletinview?art_id=10511 Favorable or Unfavorable], Doug Noland, Prudent Bear</ref> In a sound money system the credit would not have been created, so dealing with the problem once created is inherently flawed. If a slow down of money and credit occurs, this exposes those who came late to the boom and transfers assets to the banking system via widespread insolvency. If the central bank encourages even more lending or the government spends more money this creates more distortions and uncertainties in the market, hampering long term investment. Government spending is often attempted as a way to stave off widespread insolvencies but this only further distorts the economy through widespread malinvestment.<ref>[http://mises.org/store/Rollback-P10449.aspx ''Rollback''], Thomas Woods</ref> Later, after the immediate crisis, when tax receipts from the private sector decline due to reduce private investment, governments are often forced to reduce basic social services or welfare to the poor to pay for the increased bond payments to bankers and other wealthy investors, making those least responsible and least able to pay for the crisis suffer wrenching economic hardship due to excessive public and private debt/credit creation.<ref>[http://www.marketoracle.co.uk/Article26581.html Ten Reasons The Banksters Got Away With It], Danny Schechter</ref><ref>[http://mises.org/store/Rollback-P10449.aspx ''Rollback''], Thomas Woods</ref>

Antal E. Fekete compares quantitative easing to the repeated supply of opium by an immoral drug dealer to a dependent drug addict:<ref>[http://www.marketoracle.co.uk/Article26339.html Silver and Opium], Antal E. Fekete</ref>

{{quote|The explanation for this self-destructing behavior is the addictive, debilitating and mind-corrosive nature of paper money, in direct analogy with that of opium. The high caused by administering the opium pipe to the patient (read: administering QE) had to be repeated when the effect faded by a fresh administration of more opium (read: more QE2).}}

Aside from the [[moral hazard]] issue, the key risk with [[quantitative easing]] is that the [[central bank]] exposes the financial system to disruptive inflation, as the growth in the [[money supply]] spirals out of control due to the need to save the [[bank]]s from themselves.<ref>[http://www.lewrockwell.com/north/north961.html Tiger], Gary North</ref><ref>[http://www.marketoracle.co.uk/Article27530.html The Fed Obliterates the Savings Ethic], Douglas French</ref> This eventually tends to precipitate a currency and/or government bond crisis, as the debt-based currency becomes completely dysfunctional when either the currency becomes worthless or when debtors - including government debtors - cannot even pay interest on the debt money.<ref>[http://www.marketoracle.co.uk/Article25964.html QE is Nothing New], Mike Hewitt</ref><ref>[http://www.marketoracle.co.uk/Article25313.html Asset Speculation and Capital Destruction], Jim Willie</ref><ref>[http://www.swlearning.com/economics/hall/hall-lieb2e-upd/ppt_lecture/exchange_rate_macro_policy.ppt Exchange Rates and Macroeconomic Policy]</ref><ref>[http://www.sciencedirect.com/science?_ob=ArticleURL&_udi=B6VGT-41WBFRG-1&_user=10&_rdoc=1&_fmt=&_orig=search&_sort=d&view=c&_acct=C000050221&_version=1&_urlVersion=0&_userid=10&md5=4e89075114dcdb58b503172ff1801bd2 Central Bank Intervention]</ref><ref>[http://www.federalreserve.gov/newsevents/speech/mishkin20071026a.htm Financial Instability and the Federal Reserve as a Liquidity Provider, by Frederic S. Mishkin]</ref>

For these reasons, a collapse in confidence in the [[solvency]] of the domestic banking system (and the central government) is one of the most complex and difficult policy issues any central government can face.<ref>[http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100008812/irelands-debt-servitude/ Ireland's Debt Servitude], Ambrose Evans-Pritchard, UK Telegraph</ref> If the central bank continues to try to save the current players in the banking sector by continually printing money and inflating its way out of the crisis, at some point hyperinflation suddenly appears, and has appeared many times in history.<ref>[http://mises.org/daily/4869 Can the Fed Become Insolvent?], Robert Murphy</ref><ref>[http://blog.mises.org/14626/quantitative-easing-explained/ Quantitative Easing Explained], YouTube video</ref>

Some commentators have observed that the media and the Fed have to constantly come up with new terms (such as "quantitative easing") to hide the fact that they are simply repeating the same failed policy of monetary inflation that corrupt sovereigns have deployed at the end of failed regimes many times over the millenia.<ref>[http://www.marketoracle.co.uk/Article25679.html Many Euphemisms for Money Creation], Thorsten Polleit</ref> This is also now referred to by some [[monetary reform]]ers and [[economist]]s as "socialism for the rich and capitalism for the poor", as many indebted [[consumers]] will still lose their [[house]]s and be declared [[bankrupt]] regardless whether or not the central bank intervenes to save marginal lenders who have been made [[insolvent]] through their mis-timing of the [[credit cycle]].<ref>[http://www.youtube.com/watch?v=ny6YI2JCP9Q&feature=player_embedded#at=147 Blood Starts Flowing on the Streets], Max Keiser interview with Gerald Celente</ref><ref>[http://www.rgemonitor.com/blog/roubini/228924/ Privatizing Profits and Socializing Losses, by Nouriel Roubini]</ref><ref>[http://www.beearly.com/pdfFiles/Satyajit%20Das.pdf Regulatory Debauchery by Satyajit Das]</ref> Future generations of innocent taxpayers may ultimately finance any [[bail out]] of reckless lenders, as the money used to fund any [[bail out]] will be funds diverted from the general revenue of the central government.<ref>[http://www.ft.com/cms/s/0/f4cf8426-654d-11dc-bf89-0000779fd2ac.html A run on the bank]</ref>

In times of crisis, some bankers still refer to [[Walter Bagehot]]'s 1873 commentary on monetary crises, ''Lombard Street'', in an attempt to gain insights into the way in which central bankers should revive illiquid banking systems.<ref>[http://www.prudentbear.com/index.php/thebearslairview?art_id=10513 The Evils of Crony Capitalism], Martin Hutchinson</ref><ref>[http://blogs.ft.com/economistsforum/2010/04/a-history-lesson-from-lombard-street-for-wall-street-in-2010/ History Lesson from Lombard Street], Roger Farmer, Ft.com</ref> However this old text may be outdated in circumstances where the community's debt limits have been reached and where the banking crisis arises from insolvency or environmental depletion rather than illiquidity.<ref>[http://www.youtube.com/watch?v=0KInB2rvgaY Eco Eco Disaster], Keiser Report</ref><ref name="Willie_Misdiagnosis" /><ref>[http://www.prudentbear.com/index.php/creditbubblebulletinview?art_id=10511 Favorable or Unfavorable], Doug Noland, Prudent Bear</ref> A prime example where aging demographics combined with reckless bank lending in a purely fiat debt-based monetary system resulted in economic problems which no amount of money printing or government spending could fix can be found in the case of the [[Japanese asset price bubble]].<ref>[http://www.economist.com/displaystory.cfm?story_id=10286992 The Japanese and American Bubbles: Been There, Done Some of That]</ref> Some believe the West will repeat the mistakes of the Japanese and the result will be worldwide monetary disorder and instability and economic decline.<ref>[http://dailyreckoning.com/destiny-is-demography/ Destiny is Demography], Bill Bonner</ref><ref>[http://www.economist.com/displaystory.cfm?story_id=10286992 The Japanese and American Bubbles: Been There, Done Some of That]</ref><ref>[http://www.prudentbear.com/index.php/creditbubblebulletinview?art_id=10508 Monetary Disorder], Doug Noland</ref><ref>[http://www.prudentbear.com/index.php/creditbubblebulletinview?art_id=10571 Crumbling Pillars], Doug Noland. Quote: "Whether it’s monetary or fiscal policy - at home or abroad – there seems to be confirmation everywhere that policymaking has become largely ineffectual and, increasingly, incapacitated. This is fundamental to my bearish thesis. With each passing market day it seems to take a greater leap of faith to believe that additional monetary and fiscal stimulus will ameliorate a sovereign debt crisis fomented by ultra-loose monetary and fiscal policies. Increasingly, it appears impossible for policies that fomented monetary instability to now somehow engender a return to market stability. Liquidity-challenged global markets are convulsing through a problematic period of de-risking and de-leveraging, and once such a process commences it basically has to run its course. Efforts to intervene in the marketplace, as we’ve been witnessing, are likely to beget only greater uncertainty and instability."</ref><ref>[http://www.youtube.com/watch?v=zbQq33iTsrw Rigged bank rates]</ref>

===Debt Saturation, Unstable Markets and the Keynesian Endpoint===

Keynesians often refer to Keynes' dictum "In the long run we are all dead" to justify artificially low interest rates and short-term stimulus spending by government to "kick start" a stalled economy where pre-existing private debt levels have caused spending to collapse. Tyler Cowen has responded to this Keynesian rejoinder with the following response:<ref>[http://www.nytimes.com/2011/03/06/business/06view.html The Fiscal Illusion], Tyler Cowan</ref>

{{quote|The famous Keynesian rejoinder, “In the long run we are all dead,” is less comforting when that long run comes into sight. Short-run planning is a hard carousel to stop, especially when there are frequent election cycles, but the federal government must act soon...

The technocratic Keynesian recommendation was to run deficits in bad times and surpluses in good times. But except for one stretch during the Clinton administration, this notion has been broken since the early 1980s. In the United States, at least, Keynesian economics has failed to find the necessary political institutions to enact and sustain a wise version of the theory.

Now that fiscal constraints are starting to bite, many politicians are afraid to reform or even to discuss changes in the largest problem areas...

Fiscal austerity may sometimes sound like a dogmatic religion, but fixed principles often help us do the right thing, especially when temptation beckons. Professor Buchanan argued that the real choice was between a religion of budget balance and a rule of illusion.

...the rigor of the numbers will soon sweep away the fiscal illusion. The only question is whether we will end the charade on our own terms or continue to play the fool.}}

Nassim Taleb posits that with increasing debt comes increasing fragility as markets end up standing on a "knife-edge" between precipitous currency devaluation due to money printing and widespread insolvency/depression due to slowing organic money supply growth.<ref>[http://www.zerohedge.com/news/2013-01-25/taleb-skin-game-and-his-disdain-public-intellectuals Nassim Taleb Interview on Anti-Fragile]</ref> It therefore becomes increasingly difficult for central banks to control volatility in heavily indebted world markets, until it ultimately becomes impossible to control.<ref>[http://www.zerohedge.com/news/2013-01-25/taleb-skin-game-and-his-disdain-public-intellectuals Nassim Taleb Interview on Anti-Fragile]</ref>

No current commentator predicts bankers, politicians or government employee unions will spontaneously reform themselves.<ref>[http://www.lewrockwell.com/lewrockwell-show/2011/03/27/193-gold-guns-and-getaway-plans/ Gerald Celente interview with Lew Rockwell]: Lew Rockwell: "When do you see social unrest coming to this country?" Gerald Celente: "I see more crime happening in this country, and social unrest at a much lower level. The people in this country don't have what it takes... This is a country of soccer mommies boys. We're prescription drug-addicted and we're junk food fat... Look at the way they dress, look at the way they talk, look how the Nation's become so Snooki-stupid."</ref> Noted commentator Bill Bonner and others have described politicians, welfare recipients, bankers and other tax beneficiaries as economic "zombies" obsessed with preserving their own coercively acquired incomes and unable to adapt to new economic realities. He has predicted that the "zombies" will continue to "steal" as much as possible and parasitically live off the productive efforts of others until the whole monetary system collapses.<ref>[http://dailyreckoning.com/the-coincidental-rise-of-oil-and-the-monetary-base/ The Coincidental Rise of Oil and the Monetary Base], Bill Bonner</ref><ref>[http://dailyreckoning.com/california-the-greece-of-the-us-financial-crisis/ California: The Greece of the U.S.], Bill Bonner</ref><ref>[http://dailyreckoning.com/zombies-born-of-government-spending/ Zombies Born of Government Spending], Bill Bonner</ref><ref>[http://www.zerohedge.com/article/not-program-salvage-greek-economy-its-program-pillage-bankruptcy Pillage Before Bankrupcty], Washington's Blog</ref> Some commentators have criticized so-called "zombie" bureaucracies such as the TSA as not only deadweights on the real productive economy, costing millions of tax dollars each year; their very existence hinders economic productivity.<ref>[http://mises.org/daily/5611/TSA-and-Unproductive-Labor TSA and Unproductive Labor], James E. Miller</ref> It is alleged that once these organizations are created and fed by government fiat, these "zombies" never die because there is no natural market mechanism to provide the necessary feedback signalling that they are unwanted by consumers. They grow only because they survive through government bureaucratic support and largesse - which comes from coercively acquired tax dollars or central bank produced fiat money. It is argued that the richest parasitic "zombies" (such as the CEOs and shareholders of the private security firms servicing the TSA's multi-million dollar government contracts) will continue to suck as much wealth from the productive economy as possible and then move on to the next host country with their real wealth converted into land, precious metals and jewels and other real assets.

The difficulty with any attempt at reform measures is that the "Ponzi" elements of finance are inextricably tied to pension funds and "real" elements in the economy, making it impossible to eliminate the "cancer" without damaging the wealth-creating structures as well.<ref>The term "cancer" is specifically mentioned in [http://www.pytheas.net/docs/Laissez-faire-and-policymakers.pdf Laissez-faire, investment banks and policy makers], Pytheas Market Focus, August 2009</ref><ref>[http://www.telegraph.co.uk/finance/comment/jeffrandall/8436123/We-must-call-the-bluff-of-the-big-bad-banks.html We must call the bluff of the big banks], Jeff Randall</ref><ref name="Repudiating the National Debt"/><ref>[http://www.youtube.com/watch?v=1zMv4Offm_8&feature=player_embedded#at=1341 Max Keiser Interview with Alex Jones]</ref><ref>[http://www.buildfreedom.com/tl/rape3.shtml Economic Rape of America]</ref><ref>[http://www.youtube.com/watch?v=zbQq33iTsrw Rigged bank rates]</ref> Commentator Max Keiser has also referred to "zombie" bankers as "The Walking Dead"<ref>[http://www.youtube.com/watch?v=23_S5etzSP0 Resident Evil Zombie Banks!]</ref> and has coined the term "Suicide Banking" to describe the paradoxical situation where virtually every politician and economist acknowledges that "Too Big To Fail" is a dysfunctional policy but no one has a viable solution, given that the banking system is "rigged to blow" if threatened.<ref>[http://www.youtube.com/watch?v=PCRXz5oOQVY&feature=player_embedded Suicide Bankers], Max Keiser</ref> He also refers to the current crisis as a fight to the death not between countries or ethnic groups or political ideologies but between future-oriented, prudent and conservative "Savers" on one side and present-focused, imprudent and overconsuming "Speculators" on the other.<ref>[http://www.youtube.com/watch?v=jzzIqi2sbQY&feature=player_embedded US flashing Orange]</ref>

Many non-mainstream financial commentators believe the U.S. and the E.U. will soon experience terminal financial crises, but there is vigorous on-going debate amongst numerous commentators regarding whether this terminal currency crisis will end in hyperinflation and currency destruction (making government bonds worthless) or repeated bouts of deflation and depression (making government bonds more valuable).<ref name="Landis_Reprieve" /><ref>[http://www.marketoracle.co.uk/Article28148.html How to Keep a Damaged Financial and Economic System Afloat?], Bob Chapman</ref><ref>[http://news.goldseek.com/GoldSeek/1305306000.php Winning in the Hyperinflation/Deflation War], Deepcaster LLC</ref><ref>[http://www.marketoracle.co.uk/Article27733.html Compound Inflation], John Mauldin</ref><ref>[http://www.lewrockwell.com/north/north973.html Rick Ackerman Defects], Gary North</ref><ref>[http://globaleconomicanalysis.blogspot.com/2011/04/no-miracle-cures-from-inflation.html Impossible to Inflate Out of this Mess], MISH</ref><ref>[http://globaleconomicanalysis.blogspot.com/2009/06/big-inflationist-scare.html The Big Inflationist Scare], MISH</ref><ref>[http://globaleconomicanalysis.blogspot.com/2010/09/debating-flat-earth-society-about.html Debating the Flat Earth Society About Hyperinflation], MISH</ref><ref>[http://globaleconomicanalysis.blogspot.com/2009/01/peter-schiff-was-wrong.html Peter Schiff Was Wrong], MISH</ref><ref>[http://www.marketoracle.co.uk/Article27726.html Deflation Threat is Still Alive], EWI</ref><ref>[http://www.marketoracle.co.uk/Article27791.html Can We Give The Hyperinflation Thing a Rest?], Mike Whitney</ref> Most - but not all - Austrian commentators now believe the denouement will inevitably result in hyperinflation and render the U.S. dollar near-worthless in real terms, as U.S. bond and dollar holders compete to offload excess holdings in the face of massive ongoing issuance.<ref>[http://www.marketoracle.co.uk/Article29393.html US Dollar Supply and Demand], Jim Willie CB</ref><ref>[http://fofoa.blogspot.com/2011/04/deflation-or-hyperinflation.html Deflation or Hyperinflation?], FOFOA</ref><ref>[http://maxkeiser.com/2011/04/25/ding-ding-ding-its-all-over-rick-ackerman-concedes-hes-been-wrong-and-joins-the-hyperinflationist-camp/ It's all over! Rick Ackerman Concedes!], Max Keiser</ref> Mike Shedlock and Antal E. Fekete are amongst a small group of deflationists who believe contracting credit will continue to have a deflationary impact on the economy, causing government bonds to become even more valuable over time.<ref>[http://globaleconomicanalysis.blogspot.com/2011/05/hyperinflation-nonsense-in-multiple.html Hyperinflation Nonsense], MISH</ref><ref>[http://globaleconomicanalysis.blogspot.com/2011/04/no-miracle-cures-from-inflation.html No Miracle Cures from Inflation], MISH</ref><ref>[http://www.julianmidwinter.com.au/ The Federal Reserve as an engine of deflation], Antal E. Fekete</ref><ref>[http://globaleconomicanalysis.blogspot.com.au/2012/08/preposterous-falsehoods-from-gary-north.html Falsehoods from Gary North], MISH</ref>

It should be noted that few hyperinflationists can explain the ''precise mechanism'' by which massive amounts of new credit money will be injected into the economy. There has been no detailed explanation from the hyperinflationists regarding how, with so few potential credit-worthy borrowers (including governments), the new money (via the issuance of new debt) will be injected into the economy in sufficient volume to trigger hyperinflation in the absence of extreme government policies (such Congress authorizing every citizen to be issued with $30,000 vouchers, or a civil war, or other natural catastrophe).<ref>[http://globaleconomicanalysis.blogspot.com/2011/09/bernankes-waterloo-midst-of.html Bernanke's Waterloo], Mike Shedlock</ref>

Gary North is one of the few Austrians who does not predict the extremes of either hyperinflation or deflationary depression, but rather expects a continuation of steady, moderate price inflation encouraged and controlled by the Federal Reserve, against a background of ongoing extreme boom-busts in the real economy and the slow but systemic impoverishment of the middle class.<ref>[http://lewrockwell.com/north/north1031.html Mass Inflation, Yes; Hyperinflation, No], Gary North</ref>

Austrian commentator Robert K. Landis believes there will be a combined deflationary/inflationary catastrophe.<ref>[http://www.goldensextant.com/SavingtheSystem.html Saving The System], Robert K. Landis</ref>

Leaving aside the debate between deflationists and hyperinflationists, and in stark contrast to the predictions of deflationary or hyperinflationary catastrophe from the Austrians, monetarist, Keynesian and neo-classical economists regard the current financial system as benign and the current financial distress as temporary and not structural in nature.<ref>[http://www.marketoracle.co.uk/Article35922.html Who do You Trust?], James Quinn</ref> Most advocate "tweaking" of government policy (such as temporary increases in government spending) to get us out of the current crisis. No mainstream economist identifies the problem as fundamental or structural and no mainstream economist advocates a return to full reserve banking, the gold standard or free banking. Indeed, most financial analysts still use the normal distribution - or "Bell Curve" - to represent the likely distribution of future returns in financial markets.<ref>[http://seekingalpha.com/article/163271-rethinking-alpha-and-beta Rethinking Alpha and Beta], Paul Amery</ref> This continues despite extensive research demonstrating that the normal distribution does not apply to financial market returns, which display so-called "fat tail" distributions, with much more volatlity at the extremes than the normal distribution would predict.<ref>[http://www.bearcave.com/bookrev/misbehavior_of_markets.html The Misbehavior of Markets], Ian Kaplan</ref> The Austrian view - that the economy will either slide into depression or hyperinflation under the stresses of the current debt-based monetary monetary system - may be supported by more recent analysis of actual financial market behavior under conditions of high debt and extreme stress.<ref>[http://mises.org/daily/5352/What-Mises-Can-Teach-the-Quants What Mises Can Teach the Quants], Daniel James Sanchez</ref><ref>[http://lewrockwell.com/north/north990.html The Next Financial Crisis], Gary North</ref><ref>[http://www.debtdeflation.com/blogs/2011/06/11/dude-where%E2%80%99s-my-recovery/ Where's My Recovery?], Steve Keen</ref> And recently even mainstream economists, such as senior IMF advisor Dr Robert Shapiro, now openly acknowledge that the inter-dependencies created by the issuance of Credit Default Swaps and other risk-related financial products by reckless under-capitalized banks has created a situation of extreme global financial vulnerability, where the world is only weeks away from a complete and total financial "meltdown".<ref>[http://maxkeiser.com/2011/10/07/imf-advisor-says-we-face-a-worldwide-banking-meltdown/ IMF Advisor Says We Face a Worldwide Banking Meltdown], BBC. Quote, Dr Robert Shapiro: "If they (EU governments) cannot address this in a credible way, I believe that in perhaps two to three weeks we will have a meltdown in sovereign debt which will produce a meltdown across the European banking system - we're not just talking about a relatively small Belgian bank - we're talking about the largest banks in the world - the largest banks in Germany, the largest banks in France - that will spread. It will spread to the United Kingdom - in part through sovereign debt problems in Ireland - it will spread ''everywhere'' because the global financial system is so inter-connected they are each counter...''all'' those banks are counter-parties to every significant bank in the United States and in Britain and in Japan and around the world! This would be a crisis that would be, in my view, more serious than the crisis in 2008."</ref> John Butler of Amphora has observed that "business cycles" have become "financial cycles" with central bank manipulation of markets, and these cycles have become increasingly violent and unstable, with shorter durations and increasing frequency.<ref>[http://maxkeiser.com/2013/05/16/kr445-keiser-report-sacred-dow/ Sacred Dow]</ref> To him, this signals the dying stages of a failed system, much like a spinning top slowing down and oscillating more frequently and more violently from side to side before coming to a sudden stop. According to John Butler, increases in stock prices are not a sign the economy is recovering, but is a sign of central bank-induced inflation - the first stages of currency collapse.<ref>[http://maxkeiser.com/2013/05/16/kr445-keiser-report-sacred-dow/ Sacred Dow]</ref>

Regardless whether the government chooses hyperinflation or periodic deflationary depression as the way out, throughout history, only two real alternatives occur in the midst of economic or financial crisis: ever greater centralization (often on a "higher level") or disintegration of the core power structures and (eventually) rejuvenation.<ref>[http://www.telegraph.co.uk/comment/columnists/janetdaley/8770696/The-European-dream-lies-in-ruins.html The European dream lies in ruins], Janet Daley, UK Telegraph</ref><ref>[http://www.zerohedge.com/article/greeces-ultimatum-bailout-bankers-or-loss-sovereignty Greece's Ultimatum], ZeroHedge</ref><ref>[http://www.lewrockwell.com/north/north966.html Wealth Through Decentralization], Gary North</ref><ref>[http://mises.org/store/Rollback-P10449.aspx ''Rollback''], Thomas Woods</ref><ref>[http://blog.mises.org/9321/crisis-and-leviathan/ Crisis and Leviathan], Robert Higgs</ref><ref>[http://mises.org/store/Money-Bank-Credit-and-Economic-Cycles-P290C0.aspx Money, Bank Credit and Economic Cycles], Jesus Huerta de Soto, Mises Institute ISBN: 978-1-933550-39-8</ref><ref>[http://mises.org/store/Meltdown-P557.aspx ''Meltdown''], Tom Woods, Regnery Press ISBN: 9781596985872</ref><ref>[http://mises.org/media/4014 The Economics of Legal Tender Laws], [[Jorg Guido Hulsmann]] (includes detailed commentary on centralization during crises)</ref><ref>[http://www.amazon.com/Warwolves-Iron-Cross-International-Relationships/dp/146358380X/ref=sr_1_33?ie=UTF8&qid=1316347713&sr=8-33 Warwolves of the Iron Cross], Veronica Kuzniar Clark</ref> Accordingly, many of the more extreme monetary reformers and [[conspiracy theorists]] anticipate repeated and ever more desperate attempts at ''higher-order centralization'',<ref>[http://www.telegraph.co.uk/comment/columnists/janetdaley/8770696/The-European-dream-lies-in-ruins.html The European dream lies in ruins], Janet Daley, UK Telegraph</ref><ref>[http://www.marketoracle.co.uk/Article27051.html A New World Currency?], Ellen Hodgson Brown</ref> as the existing co-ordinated state-based central bank architecture becomes discredited through repeated economic failure and environmental crises caused by the need for unsustainable exponential debt-driven economic "growth" within the current debt-based financial architecture.<ref>[http://www.zerohedge.com/article/guest-post-economic-abyss The Economic Abyss], Brandon Smith</ref> This centralization is anticipated to include the empowerment of the UN to increasingly intervene in the domestic political affairs of nations,<ref>[http://www.lewrockwell.com/rozeff/rozeff343.html World Government], Mike Rozeff</ref> the IMF and EU to increasingly intervene in the domestic financial affairs of member nations,<ref>[http://www.telegraph.co.uk/comment/columnists/janetdaley/8770696/The-European-dream-lies-in-ruins.html The European dream lies in ruins], Janet Daley, UK Telegraph</ref><ref>[http://www.zerohedge.com/article/greeces-ultimatum-bailout-bankers-or-loss-sovereignty Greece's Ultimatum], ZeroHedge</ref><ref>[http://globaleconomicanalysis.blogspot.com/2010/11/terms-of-enslavement-irish-citizens-say.html Terms of Enslavement], MISH</ref><ref>[http://globaleconomicanalysis.blogspot.com/2010/11/imf-ready-to-help-ireland-can-imf-help.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+MishsGlobalEconomicTrendAnalysis+%28Mish%27s+Global+Economic+Trend+Analysis%29 Can the IMF help anyone?], MISH</ref><ref>[http://www.telegraph.co.uk/finance/financialcrisis/8150137/Ireland-forced-to-take-EU-and-IMF-bail-out-package.html Ireland forced to take IMF bailout package], Telegraph</ref> and the declaration of [[martial law]] and the imposition of [[fascist]]-style restrictions on [[civil rights]]<ref>[http://www.zerohedge.com/article/guest-post-us-monetary-system-and-descent-fascism-interview-dr-edwin-vieira The U.S. Monetary System and Descent Into Fascism], Dr Edwin Vieir</ref><ref>[http://english.aljazeera.net/indepth/opinion/2011/04/201142612714539672.html Global capitalism and 21st cenury fascism], William I. Robinson</ref><ref>[http://www.lewrockwell.com/rep2/jesse-ventura-on-tsa-abusers.html Jesse Ventura on the TSA' Sexual Abusers]</ref> and [[freedom of speech]] by the political [[The Establishment|Establishment]] to physically protect it from [[anarchy]] or military [[coup]] when the [[bubble (economics)|bubble]] of debt completely bursts, through a precipitous currency crisis, debt-created [[Depression (economics)|depression]], environmental crisis or oil shortage.<ref>[http://www.marketoracle.co.uk/Article26605.html Population Reduction], Chris Kitze</ref><ref>[http://jsmineset.com/2011/02/24/in-the-news-today-791/ Collapse]</ref><ref>[http://www.lewrockwell.com/lewrockwell-show/2010/12/14/179-the-espionage-act-and-the-death-of-american-freedoms/ Death of American Freedoms], Naomi Wolf, LRC interview, Dec 14, 2010</ref><ref>[http://www.house.gov/paul/congrec/congrec2007/cr120507h.htm New security legislation threats freedoms]</ref><ref>[http://www.marketoracle.co.uk/Article26325.html Bank Credit Ends in Catastrophe], Richard Daughty, The Mogambo Guru</ref> Ultimately this is anticipated to yield either repressive world government<ref>[http://www.zerohedge.com/news/2013-01-31/guest-post-linchpin-lie-how-global-collapse-will-be-sold-masses The Linchpin Lie]</ref> or chaos (or most likely both), with a world central bank stationed in Basel, Switzerland.<ref>[http://www.zerohedge.com/news/2013-05-03/monarchs-money Monarchs of Money]</ref><ref>[http://www.youtube.com/watch?v=VMngK0t5WkY Max Keiser]</ref><ref>[http://www.marketoracle.co.uk/Article28533.html The Global Debt Crisis], Ellen Hodgson Brown</ref><ref>[http://www.marketoracle.co.uk/Article27051.html A New World Currency?], Ellen Hodgson Brown</ref><ref>[http://www.marketoracle.co.uk/Article27554.html Libya War All About Oil or Gold and Banking?], Ellen Hodgson Brown</ref><ref>[http://blog.mises.org/9321/crisis-and-leviathan/ Crisis and Leviathan], Robert Higgs</ref> During this transition period, some analysts and conspiracy theorists anticipate multiple wars to force governments into the BIS financial "net",<ref>[http://www.youtube.com/watch?v=VMngK0t5WkY Max Keiser]</ref><ref>[http://www.marketoracle.co.uk/Article28533.html The Global Debt Crisis], Ellen Hodgson Brown</ref><ref>[http://www.marketoracle.co.uk/Article27051.html A New World Currency?], Ellen Hodgson Brown</ref><ref>[http://www.marketoracle.co.uk/Article27554.html Libya Ware All About Oil or Gold and Banking?], Ellen Hodgson Brown</ref> impotent and counterproductive price controls,<ref>[http://globaleconomicanalysis.blogspot.com/2011/03/food-prices-rise-11-in-china-overall.html Chinese inflation], MISH</ref><ref>[http://www.lewrockwell.com/goyette/goyette18.1.html Too Late!], Charles Goyette</ref> repeated sell-offs of monopoly state assets in a desperate attempt to feed private domestic banks with steady, coercively acquired income to keep the value of government bonds collapsing,<ref>[http://globaleconomicanalysis.blogspot.com/2011/05/whos-bigger-socialist-president-obama.html Who's the Bigger Socialist?], MISH</ref> and then, once this attempt (to feed unsustainable compounding debt with any remaining basic infrastructure) destroys any remaining parts of the productive economy, there will be in the end coercively enforced rationing of basic essentials to ensure continued supply of food and oil to senior government officials, bankers and their associates amidst widespread general starvation and chaos,<ref>[http://www.technologyreview.com/blog/arxiv/27083/?p1=blogs Food prices and Riots]</ref><ref>[http://www.marketoracle.co.uk/Article26605.html Population Reduction], Chris Kitze</ref> as the coalescence of a corrupt banker-government coalition solidifies<ref>[http://www.zerohedge.com/news/2013-01-31/guest-post-linchpin-lie-how-global-collapse-will-be-sold-masses The Linchpin Lie]</ref><ref>[http://maxkeiser.com/2011/04/28/kr142-keiser-report-blind-cult-of-america/ Blind Cult of America]. Quote: Max Keiser: "Yes, it's beyond religious fervor. That's the point. It's become this echo chamber, cult-like 'America can't fail' which is very endemic when you see suicide cults. Remember Jim Jones. Remember him. The Kool Aid. He made the idea of drinking Kool Aid... he popularized that notion. Everyone committed suicide in Guyana. Or the Hail-Bot Comet Cult. Here you've got 300 million Americans who are worshiping this idea of 'American-style' Free Market Capitalism that doesn't exist. They support market manipulation on Wall Street and they're all gonna ''die'' as a result. Now that's less than 5% of the world's population. It is 25% of the world's garbage so the world will breathe a sigh of relief, but, as far as those living inside they don't really understand that they're being used as cult fodder." Stacy Herbert: "The equivalent of drinking the cyanide-laced Kool Aid would be purchasing a McMansion with a sub-prime mortgage. This is them committing suicide. It's the equivalent of drinking cyanide-laced Kool Aid." Max Keiser: "It's financial suicide. As we've talked about. Financialization of the economy has turned into this hybrid reality that combines political malfeasance with financial larceny and that's the combination between Obama's White House and Wall Street merging together into something even more insidious than fascism. It's a Klepto-F*@kingSh*tism. It's a... it's a Klepto-Sh*tism is the current political-financial school of thought in America today and it's not working. It's unsustainable."</ref> to eliminate potential dissent and ensure the forced elimination - by any means necessary - of any actual or potential competing [[currencies]] that could threaten the viability or legitimacy of the [[monopoly]] currency, which could include war against any country considering using any currency other than US dollars to price essential commodities such as oil <ref>[http://www.lewrockwell.com/holland/holland44.1.html Anglo-American Deception], Ron Holland</ref> and the compulsory confiscation of all privately-owned [[gold]] (gold being the ultimate reserve currency, still used by central banks as a universally accepted medium of exchange for the settlement of international debts).<ref>[http://mises.org/daily/5184/The-Crime-of-Private-Money The "Crime" of Private Money], Robert Murphy</ref><ref>[http://www.zerohedge.com/article/guest-post-thoughts-liberty-dollar-debacle Liberty Dollar], ZeroHedge.com</ref><ref>[http://blog.mises.org/14795/the-gold-clause-cases-and-constitutional-necessity/ Gold Clause Cases]</ref><ref>[http://news.goldseek.com/GoldSeek/1196605589.php America's Trade Debts Lead to a Likely Gold Confiscation]</ref><ref>[http://www.libertydollar.org/ld/legal/raid.htm FBI Raids Liberty Dollar]</ref><ref>[http://www.lewrockwell.com/rothbard/solution.html The Solution]</ref><ref>[http://prudentinvestor.blogspot.com/2007/09/us-mint-suspends-gold-coin-sales-due-to.html US Mint Suspends Gold Coin Sales]</ref><ref>[http://www.swissamerica.com/article.php?art=06-2004/200406140537f.txt Why a Gold Standard Now?]</ref><ref>[http://www.lewrockwell.com/blog/lewrw/archives/73468.html Bank of America an arm of US government policy]</ref><ref>[http://www.marketoracle.co.uk/Article26325.html Bank Credit Ends in Catastrophe], Richard Daughty, The Mogambo Guru</ref><ref>[http://www.sovereignman.com/expat/bernanke-terrorist Bernanke is the domestic terrorist], Sovereign Man</ref><ref>[http://www.marketoracle.co.uk/Article28225.html DSK Was Trying to Torpedo the Dollar], Mike Whitney</ref>

Some have speculated that the overthrow and attempted assassination of Col. Gaddafi and his family in 2011 Libyan "civil war" was triggered by Col. Gaddafi's open (and unwise) attempt to price Libya's oil in gold, which is the reaction many would expect for a country that "dared" to price an essential commodity in anything other than a Western paper currency.<ref>[http://www.youtube.com/watch?v=GuqZfaj34nc&feature=player_embedded#! Gaddafi: Gold for Oil?], RTTV</ref><ref>[http://www.youtube.com/watch?v=8lnslMWhOTw&list=SPC3F29DDAA1BABFCF&index=194 Welcome Home German Gold], Max Keiser</ref>

There have been many [[financial crisis|monetary crises]] throughout history.<ref>[http://www.zerohedge.com/news/2013-02-26/trust-me-time-different Trust Me This Time Is Different]</ref><ref>[http://www.delanion.com/main/dom.htm Fiat Money Inflation in France], Gold Money video featuring Max Keiser, James Turk and Pierre Jovanovic</ref><ref>[http://www.delanion.com/main/dom.htm Dying of Money], Jens O. Parsson</ref><ref>[http://www.delanion.com/main/dom.htm Dying of Money], Jens O. Parsson</ref><ref name="Bonner_Swan">[http://www.lewrockwell.com/bonner/bonner454.html Revolution in Egypt and Black Swans], Bill Bonner, February 15, 2011.</ref><ref>[http://news.goldseek.com/GoldSeek/1297199137.php China Inflation and Gold], Darryl Robert Schoon</ref><ref>[http://mises.org/store/Early-Speculative-Bubbles-P578.aspx Early Speculative Bubbles and Increases in the Money Supply], Doug French, Mises Institute ISBN: 978-1-933550-44-2</ref><ref>[http://dailyreckoning.com/a-word-of-advice-to-financial-authorities/ Advice to Financial Authorities], Bill Bonner</ref><ref>[http://www.marketoracle.co.uk/Article26325.html Bank Credit Ends in Catastrophe], Richard Daughty, The Mogambo Guru</ref> Some commentators have noted that our present system and the strategies attempted by governments to reflate the economy closely resemble the failed theories of John Law and the Mississippi bubble of the early 18th century.<ref>[http://www.economist.com/node/14215012 Law of easy money], ''The Economist''</ref> There are a number of standard warning signs of impending depression or hyperinflation caused by a complete breakdown of trust in any [[monetary system]].<ref>[http://mises.org/store/Product.aspx?ProductId=435 Fiat Money Inflation in France], Andrew Dickson White, Mises Institute</ref><ref>[http://www.marketoracle.co.uk/Article25313.html Asset Speculation and Capital Destruction], Jim Willie</ref><ref>[http://www.zerohedge.com/article/guest-post-economic-abyss The Economic Abyss], Brandon Smith</ref><ref>[http://lewrockwell.com/orig12/martenson8.1.1.html Argentina: A Case Study], Chris Martenson and FerFAL</ref> Just prior to the complete collapse of the [[pyramid scheme]] of public and private debt, the economic system tends to feed on itself, and in the past, where debt-created [[Depression (economics)|depression]]s or periods of [[hyperinflation]] have occurred in [[Europe]],<ref name="Bonner_Swan" /> the [[U.S.]] and [[China]], there has been a sustained spike in predatory economic behavior, as the heavily indebted central government and producers are forced to find more extreme (previously considered unethical) methods to extract any remaining wealth from increasingly desperate and impoverished [[consumers]], who are either unwilling or unable to go into further debt without forceful coercion.<ref>[http://www.zerohedge.com/article/guest-post-ethics-mortgage-loan-default The Ethics of Mortgage Loan Default], Greg Lemelson</ref><ref name="Bonner_Swan" /><ref name="http">{{cite book |last= Widdig |first= Bernd |title= Culture and Inflation in Weimar Germany |url= http://books.google.com/books/ucpress?id=kvKAATycUzIC |accessdate= 2007-12-16 |year= 2001 |publisher= University of California
Press |isbn= 0520222903 }}</ref><ref>[http://mises.org/daily/3569 John Law and the Invention of Modern Finance], Doug French (Mises.org)</ref><ref>[http://mises.org/daily/1690 The Saga of John Law and Richard Cantillon], Sean Corrigan (Mises.org)</ref> [[Long-term]] investment and sustained [[capital investment]] are almost impossible in this environment because the "measuring stick" of [[return on investment]] (the real value of [[money]]) is so uncertain at times of debt-induced [[credit crunch]], depression or hyperinflation.<ref>[http://www.marketoracle.co.uk/Article25313.html Asset Speculation and Capital Destruction], Jim Willie</ref>

As potential new [[borrower]]s and international financiers are scared away from participating in the [[pyramid scheme]] of debt and borrowing further, the [[monetary system]] seizes up, starved of the fresh injections of [[debt money]] it needs for its survival, thereby precipitating economic [[anarchy]],<ref name="Bonner_Swan" /><ref>[http://www.zerohedge.com/article/guest-post-economic-abyss The Economic Abyss], Brandon Smith</ref> widespread [[lawlessness]]<ref name="Bonner_Swan" /> and [[insolvency]] of the monetary and banking system.<ref>[http://www.youtube.com/watch?v=FPxYg6mgGpE Inflation is There], Peter Schiff</ref><ref>[http://www.oftwominds.com/blognov07/empire-debt1.html Empire of Debt]</ref><ref name="Landis_Reprieve" /><ref>[http://www.marketoracle.co.uk/Article25313.html Asset Speculation and Capital Destruction], Jim Willie</ref><ref name="Bonner_Swan" /> Some have described the moment when governments cannot borrow any more from banks to keep up the growth in debt money as the "Keynesian Endpoint" or "Keynesian Endgame" or point of "Debt Saturation" - which is the point in time when ''in extremis ''"emergency" measures by the government to kick-start the economy by increasing total gross debt have no lasting positive effect on GDP.<ref>[http://www.zerohedge.com/article/guest-post-economic-death-spiral-has-been-triggered The Economic Death Spiral], Gordon T. Long</ref><ref>[http://www.zerohedge.com/article/charting-ten-year-prelude-keynesian-endgame Keynesian Endgame], ZeroHedge</ref><ref>[http://en.wikipedia.org/wiki/Keynesian_endpoint Keynesian Endpoint], Wikipedia definition</ref><ref>[http://www.marketoracle.co.uk/Article27801.html U.S. Debt Saturation and Money Illusion], Gordon T. Long</ref> Antal E. Fekete identifies this "crisis" point as the point when the marginal increase in total gross debt has no positive marginal effect on GDP.<ref>[http://www.professorfekete.com/articles/AEFGotterdammerung.pdf Gotterdammerung], Antal E. Fekete</ref> According to Professor Fekete, once the marginal productivity of debt turns negative, a disastrous depression is inevitable.<ref>[http://www.professorfekete.com/articles/AEFGotterdammerung.pdf Gotterdammerung], Antal E. Fekete</ref>

Recent studies have indicated that debt turns toxic at between 80 and 100 percent of GDP. Beyond this, further increases in debt reduce GDP rather than stimulate it.<ref>[http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100011744/when-debt-levels-turn-cancerous/ When Debt Levels Turn Cancerous], Ambrose Evans-Pritchard</ref>

This final denouement is triggered when [[borrower]]s cannot be found to buy depreciating, already-indebted, assets, and international financiers reduce lending as they experience losses on pre-existing loans either through asset or currency [[depreciation]].<ref>[http://www.youtube.com/watch?v=FPxYg6mgGpE Inflation is There], Peter Schiff</ref> Some analysts predict that the [[monetary system]] will seize up due to a [[deflationary]] depression<ref>[http://www.zerohedge.com/article/guest-post-heres-setup-con-decade The Con of the Decade], ZeroHedge</ref> or a sustained period of [[stagflation]]ary hyperinflation resulting in a "final and total catastrophe of our fiat monetary system."<ref name="Landis_Reprieve" /><ref>[http://www.marketoracle.co.uk/Article25313.html Asset Speculation and Capital Destruction], Jim Willie</ref><ref>[http://www.youtube.com/watch?v=FPxYg6mgGpE Inflation is There], Peter Schiff</ref><ref>[http://www.marketoracle.co.uk/Article27402.html Deflationists Blind to Inflationary Storm], Jim Willie</ref><ref>[http://www.marketoracle.co.uk/Article27466.html Compounding Debt]</ref>

Examples of debt and monetary crises can often be found after failed wars, when international financiers realize the heavily indebted [[government]] they funded will not gain the resources it planned to seize as a result of the waging of aggressive war. When this pay-off does not materialize, the losing government is left with the debt of war without the ability to offset this government debt through the imposition of reparations on the defeated nation and the acquisition of the defeated state's resources, thereby boosting the victorious state's GDP and tax revenues. This sudden monetary collapse occurred to [[Germany]] after the [[First World War]] and [[Japan]] after the [[Second World War]].

Whatever the trigger, the key warning sign of any impending monetary crisis and economic [[anarchy]] is a sudden [[currency crisis]], or a sudden spike in domestic interest rates, or a sudden [[credit crunch]] or the announcement of a bank holiday.<ref>[http://mises.org/daily/6400/Lessons-from-Cyprus Lessons from Cyprus]</ref><ref name="Landis_Reprieve" /> Early warning signs that the [[private banks]] themselves are aware of an impending breakdown in the [[solvency]] of the [[financial system]] would be any combination of some or all the following: a spike in the [[oil]] price (which is an internationally accepted, inherently limited, store of value, and therefore can act as a modern form of [[hard currency]], oil sometimes being referred to as "black gold"), "backwardation" in [[gold]],<ref>[http://www.zerohedge.com/news/2013-02-22/gold-and-potential-dollar-endgame-part-3-backwardation-and-gold Gold and the Potential Dollar Endgame]</ref><ref>[http://www.minyanville.com/businessmarkets/articles/gold-spot-price-gold-prices-gold/5/10/2011/id/34441?camp=syndication&medium=portals&from=yahoo Permanent Gold Backwardation: Why a "Crack Up Boom" Is Inevitable], Keith Weiner</ref> and [[silver]]<ref>[http://www.youtube.com/watch?v=021yEhjPDa0&feature=player_embedded#at=826 $400 Ounce Silver, $8000 Ounce Gold], James Turk</ref><ref>[http://www.youtube.com/watch?v=FPxYg6mgGpE Inflation is There], Peter Schiff</ref> and sudden price spikes in other stable, non-perishable, inherently limited [[natural resources]] essential for non-discretionary industrial production;<ref>[http://www.marketoracle.co.uk/Article25313.html Asset Speculation and Capital Destruction], Jim Willie</ref> a spike in the [[futures contract]]s for vital agricultural [[commodities]]<ref>[http://www.marketwatch.com/story/fed-dictator-bernanke-needs-to-be-toppled-2011-02-15 Fed dictator Bernanke needs to be toppled], Paul B. Farrell</ref><ref>January 27, 2011 – ''Financial Times'' (Javier Blas and Chris Giles): “Governments across the developing world are stockpiling food staples in an attempt to contain panic buying, inflation and social unrest. But the hoarding is driving agricultural commodity prices even higher. The cost of wheat, the world’s most important staple, reached a fresh two-and-a-half-year high on Thursday, after countries from Algeria to Saudi Arabia announced extraordinary purchases. High food prices have been a contributing factor to the recent wave of social unrest across North Africa and the Middle East. In Algeria earlier this month, young rioters chanted ‘Bring us sugar!’ The cost of the sweetener in the wholesale market is at its highest in 30 years. Earlier this week, Algeria bought 800,000 tonnes of wheat – much more than usual – and Saudi Arabia announced plans to double the size of its wheat stockpile. Bangladesh and Indonesia joined the rush on Thursday, placing extraordinary on rice orders.”</ref> such as [[sugar]],<ref>[http://www.bloomberg.com/news/2010-12-15/portugal-tries-to-prevent-sugar-hoarding-amid-shortage-ft-says.html 2010 Portugal Sugar Crisis]</ref> [[corn]], [[wheat]], [[soybean]]s and [[rice]], as investors realize the debt-based monetary system has squeezed supplies of [[arable land]];<ref>[http://webofdebt.wordpress.com/2011/02/03/the-egyptian-tinderbox-how-banks-and-investors-are-starving-the-third-world/#more-1052 Banks and investors are starving the Third World], Ellen Hodgson Brown</ref><ref>[http://www.preparednesspro.com/blog/food-shortage-series-part-1/ Food Shortage Series],Kellene Bishop</ref><ref>[http://www.smh.com.au/environment/world-hungers-for-more-food-20110402-1csbh.html World hungers for more food], Sydney Morning Herald,</ref> a sudden flight of money ''to'' [[Treasury bills]] and/or a sudden spike in the [[interest rate]] differential between short-term [[Treasury bills]] and asset-backed corporate paper (or a sudden spike in the [[LIBOR]] rate in [[London]])<ref name="Landis_Reprieve" /><ref>[http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/12/03/cnrates103.xml&CMP=ILC-mostviewedbox Pleas for rate cut as interbank loans dive]</ref> - and then, in the very late stages of a credit crisis, a sudden and disorderly flight of money ''away from'' government bonds and a "shock" or "panic" collapse in government bond prices, as banks perceive that some governments will ultimately find it ''impossible'' to pay interest on their debt from coercively acquired taxes.<ref>[http://www.youtube.com/watch?v=SgNLTb58K_Y S&P Rating on US Sovereign Debt not Low Enough], Peter Schiff</ref><ref>[http://www.telegraph.co.uk/finance/economics/8190059/Global-bond-rout-deepens-on-US-fiscal-worries.html Global bond rout], Ambrose Evans-Pritchard, UK Telegraph</ref><ref>[http://www.prudentbear.com/index.php/thebearslairview?art_id=10480 When Will The U.S. Become Greece?], Michael Hutchinson</ref>

Shortly thereafter, some [[monetary reform]]ers predict that there would be desperate, but ultimately futile [[central bank]] intervention involving massive, repeated bouts of "quantitative easing",<ref>[http://www.zerohedge.com/article/did-fed-its-stealthy-synthetic-bet-keep-yields-low-become-next-aig Doubling Down], ZeroHedge</ref> then a [[currency crisis]],<ref>[http://www.zerohedge.com/article/jim-grant-inflation-there-will-be-lot-it-suddenly-because-our-interest-rate-structure-beyond Jim Grant on Inflation], ZeroHedge</ref> then a panic run on a number of marginal, [[insolvent]] [[banks]] and [[hedge funds]] as desperate wealthy investors try to get [[cash]] out before the [[pyramid scheme]]<ref>[http://www.youtube.com/watch?v=FPxYg6mgGpE Inflation is There], Peter Schiff</ref> collapses to invest in inherently limited, non-perishable, in-demand commodities such as [[oil]] and [[gold]]<ref>[http://www.professorfekete.com/articles/AEFAmericanBasesGermanyGoldBasis.pdf The Gold Basis], Antal E Fekete]</ref><ref>[http://www.zerohedge.com/article/golden-tipping-point-university-texas-takes-delivery-1-billion-physical-gold A Golden Tipping Point], ZeroHedge</ref><ref>[http://www.youtube.com/watch?v=FPxYg6mgGpE Inflation is There], Peter Schiff</ref><ref>[http://www.marketoracle.co.uk/Article25313.html Asset Speculation and Capital Destruction], Jim Willie</ref> (and undeveloped agricultural and industrial [[land]] in areas of the world with strong [[economic growth]]),<ref>[http://www.nytimes.com/2011/03/04/business/04farms.html?_r=1&hp Price of Farmland] NYTimes</ref> followed by a [[recession]] or [[depression]] in the broader heavily indebted economy as [[money supply|credit]] contracts but base money continues to rise exponentially.<ref>[http://www.marketoracle.co.uk/Article27172.html Why QE has NOT brought back inflation], EWI</ref><ref name="Landis_Reprieve" /><ref>[http://www.marketoracle.co.uk/Article25313.html Asset Speculation and Capital Destruction], Jim Willie</ref><ref>[http://www.newyorkfed.org/research/staff_reports/sr291.pdf Hedge Funds, Financial Intermediation and Systemic Risk]</ref><ref>[http://jsmineset.com/2011/02/24/in-the-news-today-791/ Collapse]</ref><ref>[http://www.marketoracle.co.uk/Article27596.html US Accelerating Inflation Mega-Trend], Nadeem Walayat</ref>

Historically, during periods of monetary disorder, a predator-prey mentality generally grips society, with parasitic or predatory activity being witnessed, eating away at the last vestiges of the middle class.<ref>[http://www.goldonomic.com/When%20Money%20Dies.pdf When Money Dies], Adam Fergusson</ref> In such circumstances the following activities continue to be profitable and proliferate during monetary disorder: international banking and financial services to the wealthy elite, to assist in secreting their assets outside the jurisdiction; drug trafficking and distribution to ease the psychological stress on those slipping down the social ladder into poverty and homelessness; security and protection services to the wealthy; entertainment services to the wealthy, including gambling, prostitution (male, female and child) and "exclusive" nightclubs and bars servicing the wealthy; luxury imported goods and services; military and defense contracting and procurement (as a form of high-level security services for elite government employees), propaganda and media services defending and glorifying and legitimizing the State; and all forms of coercive government activity generally (as the tendency towards fascist-style controls feeds on itself in a positive feedback loop around a triangle of increasing government employee numbers scared away from the shrinking private sector, a banking industry supporting government jobs and big business and defense contracting supporting and feeding both).<ref>[http://www.zerohedge.com/news/2013-05-22/greek-prostitution-soars-150-youth-unempoyment-hits-75-some-areas Greek Prostitution Soars By 150%]</ref><ref>[http://www.goldonomic.com/When%20Money%20Dies.pdf When Money Dies], Adam Fergusson</ref><ref>[http://books.google.com.au/books?id=kvKAATycUzIC&pg=PA197&lpg=PA197&dq=prostitution+modernism+weimar+germany+hyperinflation&source=bl&ots=DaJiHnllDu&sig=Acfme5660DBUC6Xw5XLdoke5IE4&hl=en&ei=fOB1Tor1BsXRmAWSoYn0DA&sa=X&oi=book_result&ct=result&resnum=5&ved=0CD4Q6AEwBDgK#v=onepage&q&f=false Culture and Inflation in Weimar Germany], Bernd Widdig</ref><ref>[http://www.businessinsider.com/finance-guy-in-london-explains-how-to-order-cocaine-from-a-restaurant-2011-9#ixzz1Y2MQUyzJ London Banker explains how to order cocaine from London restaurant]</ref><ref>[http://www.alternet.org/story/152446/inside_the_trillion-dollar_underground_economy_keeping_many_americans_%28barely%29_afloat_in_desperate_times?page=entire Inside the Underground Economy]</ref>

It should be noted that in 2011 banks started paying police directly, presumably to ensure protection from the public should widespread protests commence against their alleged [[embezzlement]] activities.<ref>[http://lewrockwell.com/wenzel/wenzel132.html Banksters Running Scared]</ref>

In 2010 Ireland and Greece experienced similar financial crises along the lines described above and many financial commentators and politicians expect more countries to go through the same debt crisis.<ref>[http://globaleconomicanalysis.blogspot.com/2010/12/video-fire-bombs-stones-fly-in-greek.html Greek protests]</ref><ref>[http://www.youtube.com/watch?v=2gm9q8uabTs "Who the Hell do you think you people are?"], Nigel Farage, UKIP leader</ref><ref>[http://www.marketoracle.co.uk/Article25313.html Asset Speculation and Capital Destruction], Jim Willie</ref> In 2011, Tunisia experienced a financial and political crisis that was almost identical to those already experienced on the poorer European periphery, except that in this case the pre-existing political establishment quickly fled the country in fear for their safety - with some allegations that the wife of the deposed leader, Leila Trabelsi, ordered the country's central bank to transfer 1.5 tonnes of [[gold]] to Zine El Abidine Ben Ali and his family.<ref>[http://www.marketoracle.co.uk/Article25636.html We are all Tunisians], Yvonne Ridley</ref><ref>[http://www.heraldsun.com.au/news/breaking-news/tunisia-missing-15-tonnes-of-gold/story-e6frf7jx-1225992107457 Tunisia missing 1.5 tonnes of gold], Herald Sun</ref> The Egyptian uprising resulted in Hosni Mubarek fleeing after desperate attempts were made by him and his associates to preserve his family's wealth and power.<ref>[http://news.yahoo.com/s/ap/20110212/ap_on_re_mi_ea/ml_egypt_mubarak_s_final_hours Mubarak's final hours], Associated Press</ref> Several newspapers have reported that, once again, appropriating the nation's gold reserves was a major priority for the fallen leader.<ref>[http://www.smh.com.au/world/mubaraks-lastminute-rush-to-hide-his-billions-20110213-1as1c.html Mubarak's Rush to Hide Billions], SMH</ref> Following the overthrow of the ruling elites in Tunisia and Egypt, other North African countries have experienced similar uprisings - all attributable to higher food prices, according to some noted commentators,<ref>[http://www.telegraph.co.uk/finance/economics/8492078/How-the-Fed-triggered-the-Arab-Spring-uprisings-in-two-easy-graphs.html How the Fed triggered the Arab Spring uprisings], Andrew Lilico</ref> who have accused Fed Chairman Ben Bernanke of literally having "blood on his hands" due to the encouragement of food price inflation via sustained inflationary loose-monetary policies.<ref>[http://globaleconomicanalysis.blogspot.com/2011/01/blood-on-bernankes-hands-riots-in-egypt.html Blood on Bernanke's Hands], MISH</ref><ref>[http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2011/4/6_Marc_Faber_-_Mr._Bernanke_is_a_Murderer_of_the_Middle_Class.html Marc Faber calls Mr Bernanke a Murderer of the Middle Class], King World News</ref><ref>[http://www.youtube.com/watch?v=V3NdUU1wWa4&feature=player_embedded#at=89 Max Keiser - Bernanke is a Murderer]</ref><ref>[http://dailyreckoning.com/lessons-from-egypt-for-the-american-people/ Lessons from Egypt], Charles Kadlec</ref><ref>[http://www.marketwatch.com/story/fed-dictator-bernanke-needs-to-be-toppled-2011-02-15 Fed dictator Bernanke needs to be toppled], Paul B. Farrell</ref><ref>[http://mises.org/daily/5050/QE2-Fuels-a-Global-Fury QE2 Fuels a Global Fury], Mark Thornton</ref><ref>[http://www.zerohedge.com/article/bernanke-blame-rising-global-revolutionary-wave?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+zerohedge%2Ffeed+%28zero+hedge+-+on+a+long+enough+timeline%2C+the+survival+rate+for+everyone+drops+to+zero%29 Is Bernanke To Blame?], Tyler Durden, ZeroHedge</ref> The central banker has denied that his inflationary loose-monetary policies have contributed to food inflation and Chicago Fed President Charles Evans has called for ''even more'' quantitative easing and inflation as a way out of the on-going crisis, despite previous attempts having failed to stimulate the economy.<ref>[http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/8302111/Fed-chief-Ben-Bernanke-denies-US-policy-behind-record-global-food-prices.html Ben Bernanke Denies US Policy Behind Food Price Inflation], UK Telegraph, 3 February 2011</ref><ref>[http://www.zerohedge.com/news/evans-goes-full-qetard-tells-hilsenrath-fed-needs-do-much-more-easing Chuckie Evans Goes Full QEtard]</ref> Implicit in Mr Bernanke's and Mr Evan's argument is the assumption that the central bank can create "good" inflation in some markets and avoid "bad" inflation in others. This alleged central bank power to direct good inflation and abate bad inflation is derided by a number of commentators.<ref>[http://www.youtube.com/watch?v=V3NdUU1wWa4&feature=player_embedded#at=89 Max Keiser - Bernanke is a Murderer]</ref><ref>[http://globaleconomicanalysis.blogspot.com/2011/01/blood-on-bernankes-hands-riots-in-egypt.html Blood on Bernanke's Hands], MISH</ref><ref>[http://dailyreckoning.com/lessons-from-egypt-for-the-american-people/ Lessons from Egypt], Charles Kadlec</ref><ref>[http://www.marketwatch.com/story/fed-dictator-bernanke-needs-to-be-toppled-2011-02-15 Fed dictator Bernanke needs to be toppled], Paul B. Farrell</ref><ref>[http://www.zerohedge.com/article/bernanke-blame-rising-global-revolutionary-wave?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+zerohedge%2Ffeed+%28zero+hedge+-+on+a+long+enough+timeline%2C+the+survival+rate+for+everyone+drops+to+zero%29 Is Bernanke To Blame?], Tyler Durden, ZeroHedge</ref><ref>[http://www.marketoracle.co.uk/Article28587.html QE2 Unmitigated Failure], James Quinn</ref><ref>[http://www.marketoracle.co.uk/Article28998.html The Great Misdiagnosis], Jim Willie CB</ref>

Noted British ''Telegraph'' commentator Ambrose Evans-Pritchard has called these the first Malthusian "Food Revolutions" of the modern era, as "agflation" causes political instability on the periphery of major economies worldwide - particularly those countries that have already denuded their agricultural base and have to import grain and other foods to survive.<ref>[http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/8291470/Egypt-and-Tunisia-usher-in-the-new-era-of-global-food-revolutions.html A New Era of Food Revolutions], Ambrose Evans-Pritchard</ref><ref>[http://jsmineset.com/2011/02/24/in-the-news-today-791/ Collapse]</ref>

It is also reported that very complex, delicate negotiations are taking place between debtor and creditor nations to swap government bonds with gold at prices far in excess of the declared "market price" of gold.<ref>[http://www.marketoracle.co.uk/Article25878.html China Buys European Gold], Jim Willie</ref> These so-called "off-market" deals - and possible diversions of government-owned gold to corrupt bankers and political leaders - are signs the Keynesian Endpoint has arrived and the politicians and bankers recognize they have lost control of the economic system and must focus on saving themselves.<ref>[http://lewrockwell.com/wenzel/wenzel113.html Fort Knox Gold], Robert Wenzel</ref><ref>[http://www.marketoracle.co.uk/Article25878.html China Buys European Gold], Jim Willie</ref> Max Keiser reports that it appears powerful nations will negotiate repatriation of their gold and smaller nations will either have to accept their gold is lost or face war if they attempt to repatriate their own gold home.<ref>[http://www.youtube.com/watch?v=8lnslMWhOTw&list=SPC3F29DDAA1BABFCF&index=194 Welcome Home German Gold], Max Keiser</ref> Germany and other countries have started to slowly repatriate their gold in anticipation that gold may not be available at any price in future.<ref>[http://www.lewrockwell.com/spl5/fed-short-germanys-gold.html What if the Fed is Short Germany's Gold?]</ref><ref>[http://lewrockwell.com/thomas-jeff/thomas-jeff16.1.html The Disappearing Gold]</ref>

Finally, it should be noted that, with the collapse of Tsarist Russia, the establishment of the fifth and final central bank of the United States, the destruction of the fiat-issuing fascist regimes in Italy, Germany and Japan post-WWII, and the collapse of communism in the 1990s, there no longer exists any major economy where the banking system is fully government-owned or has any strictly enforceable social responsibilities beyond pure profit motive. All major world economies have now adopted essentially the same monetary system, with profit-driven private banks (government-licensed institutions legally permitted to engage in unlimited credit creation) able to pocket profits during upswings and socialize losses during downswings by use of central bank asset swaps. If critics are correct that all such systems are doomed to severe boom-bust cycles because of excessive expansion of speculative credit and endemic [[moral hazard]], it is to be expected that all major economies will also experience essentially the same kind of environmental and food crises, and even allegedly "strong" economies such as China will experience severe economic downturns at some stage.<ref>[http://mises.org/daily/5070/Bust-Looms-As-China-Booms Bust Looms], Markus Bergstrom</ref><ref>[http://globaleconomicanalysis.blogspot.com/2011/03/bloodstained-property-map-and-trampled.html Bloodstained Property Map], MISH</ref> However, equally, if critics are correct that fractional reserve banking, excessive credit expansion and artificially low interest rates are at the root of all financial crises, then higher reserve ratios and capital requirements for domestic banks (or the existence of heavily controlled nationalized banks) should reduce the severity of economic crises in those economies with higher reserve requirements for their own banks.<ref>[http://www.bloomberg.com/news/2011-02-18/china-increases-banks-reserve-ratio-for-second-time-to-curb-property-boom.html China increases bank reserves to curb inflation], Bloomberg</ref><ref>[http://video.ft.com/ Lex's John Authers and Richard Stovin-Bradford discuss how to regulate banks better and how to handle those that are just too big to fail]</ref>

==Potential solutions==
Many consider it too late to reform the financial system.<ref>[http://www.zerohedge.com/news/2013-05-25/bill-black-our-system-so-flawed-fraud-mathematically-guaranteed Fraud is Guaranteed], Bill Black</ref><ref>[http://lewrockwell.com/stockman/stockman19.1.html A Review of The Great Deformation]</ref><ref>[http://matterhornassetmanagement.com/2013/03/18/get-your-assets-out-of-the-banks-now/ Get Your Assets Out of the Banks - NOW], Egon von Greyerz</ref><ref>[http://news.goldseek.com/LewRockwell/1306767600.php Is Greece the Future of America?], Mike Rozeff</ref><ref>[http://www.marketoracle.co.uk/Article27739.html Financial Slaughterhouse], Ashvin_Pandurangi</ref><ref>[http://www.marketoracle.co.uk/Article27764.html The Big QE2 Shakedown], Mike Whitney</ref><ref>[http://www.youtube.com/watch?v=-GmBoJ7qHYg&feature=player_embedded Simon Johnson INET]</ref><ref>[http://www.guardian.co.uk/business/2010/sep/14/banking-reforms-too-little-too-late Too Little Too Late], UK Guardian, 14 Sept 2010</ref><ref>[http://www.marketoracle.co.uk/Article27583.html Fed Reckoning Day Realities for Investor Pains and Gains], Deepcaster LLC</ref><ref>[http://maxkeiser.com/2013/02/02/kr401-keiser-report-fake-it-til-you-make-it-economy/ Fake It Till You Make It]</ref><ref>[http://www.marketoracle.co.uk/Article39037.html Fiat Currency Witches Brew], Ty Andros</ref> There is now so much debt in the system that the reduction in money supply growth necessary to curb [[malinvestment]] and financial bubbles would only result in financial crises and mass bankruptcies and, ultimately, business assets being transferred to the banking system. This is obvious when one observes that with no debt there is no money. With a slowing economy and reduction in money supply all assets subject to debt would inevitably be flushed through the banking system as a mathematical necessity.<ref>[http://www.moneyasdebt.net/ Money as Debt]</ref> Therefore virtually all assets will ultimately end up under the control or ownership the banking system if the present system is allowed to continue, as slowing money supply growth is inevitable with slowing population and economic growth. This is not true in a true free market monetary system<ref>[http://lewrockwell.com/woods/woods225.html Greenbackers Are Nuts]</ref> but is true of our current government manipulated debt-based system.<ref>[http://www.moneyasdebt.net/ Money as Debt]</ref>

When debt levels are unsustainable there are only a limited number of possible scenarios, and as each country reaches its debt limits each country will need to choose between these alternatives, as Iceland, Ireland, Cyprus, Greece and many other countries have already experienced. The debt is monetized, the debt is forgiven by the creditor, the debt is repudiated by the debtor and defaulted upon, the debt is postponed by temporary suspension of repayments, or the debtor finds unexpected or new ways to pay back the debt, which may include theft or confiscation from others.<ref>[http://www.zerohedge.com/news/2014-01-24/guest-post-how-paper-money-experiment-will-end How The Paper Money Experiment Will End]</ref>

The "Icelandic Solution" involved repudiation.<ref>[http://www.zerohedge.com/node/475643 The Secret Sauce of Iceland's Success Story: Debt Liquidation?]</ref> Private banks were allowed to fail and social security measures for the poor and indebted were increased. However this option is virtually impossible in other larger, less homogeneous countries given the power of the financial services sector over government in most other countries.<ref>[http://www.zerohedge.com/news/2013-01-26/only-3-minutes-worth-listening-davos Interview with Iceland's President Olafur Ragnar Grimson]</ref> It should be noted that all IMF member countries have a central bank at the heart of their financial system.<ref>[http://www.zerohedge.com/news/2013-09-16/25-fast-facts-about-federal-reserve Fast Facts About the Federal Reserve]</ref> The UK went so far as to trigger anti-terrorism legislation against Icelandic banks in a bid to pressure Iceland to pay out claims against its private banks.<ref>[http://reason.com/archives/2012/09/07/iceland-provides-a-blueprint-for-survivi Iceland Shows Other Europeans How to Survive Bankruptcy], ''Reason''</ref>

The simplest and cleanest solution for any debt-fuelled crisis is simply to [[default]] and not attempt to pay back the loans - particularly if the debt has been created unethically or fraudulently.<ref>[http://mises.org/daily/6369/The-Ethics-of-Repudiation The Ethics of Repudiation]</ref><ref>[http://mises.org/daily/5476/ There Is Life After Default], Peter Klein</ref><ref>[http://www.oftwominds.com/blogsept11/Zeus-debt-forgiveness-9-11.html Endgame], Zeus Yiamouyiannis, Ph.D.</ref><ref>[http://globaleconomicanalysis.blogspot.com/2011/02/massive-rout-in-irish-elections.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+MishsGlobalEconomicTrendAnalysis+%28Mish%27s+Global+Economic+Trend+Analysis%29 Default Best Option for Ireland], MISH</ref><ref>[http://mises.org/daily/5449/Defaulting-on-the-Feds-Bonds Defaulting on the Fed's Bonds], Robert Murphy</ref> If, as Paul Krugman and other Keynesians have argued<ref>[http://lewrockwell.com/anderson/anderson330.html Do We Really 'Owe It to Ourselves]</ref> "we owe it to ourselves", then there should be no problem repudiating that debt as it would merely involve an accounting adjustment.<ref>[http://bastiat.mises.org/2013/02/we-only-repudiate-it-to-ourselves/ We Only Repudiate It to Ourselves]</ref> This was the solution chosen by Iceland, even in circumstances which involved powerful international creditors. Despite enormous pressure from the UK government to try to force the Icelandic government to bail out its banks, it chose not to do so and allowed the private banks to default.<ref>[http://www.dailymail.co.uk/news/article-1080233/Icelanders-hit-Brown-freezing-banks-assets-We-terrorists-campaign.html Icelanders hit back at Brown]</ref> The Greek government also partially defaulted on its debts in 2012.<ref>[http://www.bbc.co.uk/news/business-17341381 Greek Default]</ref> David Graeber, author of ''Debt: The First 5000 Years'' has stated a global debt Jubilee is inevitable.<ref>[http://www.youtube.com/watch?v=SxZtfi2pYNo&list=SPPszygYHA9K2ZtV_1KphSugBB7iZqbFyz&index=6 Max Keiser Interview with David Graeber]</ref> However, particularly where government debt default is involved, bankers generally do everything to avoid this "inevitable" outcome because it (a) reduces the value of their asset (debt-based government bonds) (b) reduces or even destroys their income stream (interest on bonds) and therefore may affect their retained earnings in future (and their credit rating and compliance with Basel III rules on Tier 1 capital) (c) can result in a systemic crisis as many banks will be using that government debt to satisfy their liquidity requirements and reduce counterparty risk - even more so under Basel III (which requires a minimum proportion of "liquid" assets to be held by the banks - and those "assets" mainly consist of government bonds) and (d) signals to other countries that it is possible to escape debt without consequence and so potentially reduces the value of government debt in surrounding countries.<ref>[http://globaleconomicanalysis.blogspot.com/2011/05/trichet-goes-ballistic-walks-out-of.html Trichet Goes Ballistic], MISH</ref> Self-interested bankers are therefore often desperate to avoid government debt default, and generally much prefer an economy to be strangled by debt rather than be freed of it.<ref>[http://globaleconomicanalysis.blogspot.com/2011/05/trichet-goes-ballistic-walks-out-of.html Trichet Goes Ballistic], MISH</ref>

Confiscation or theft is often the desperate debtor's only option, if the creditors are so powerful the debtor cannot default. The sudden confiscation of part of "insured" bank depositors' savings in Cyprus is an extreme example of the last option and is the international bankers' and creditor governments' preferred "solution" as it means their debts get repaid, however unjustly.<ref>[http://www.reuters.com/article/2013/03/17/us-eurozone-cyprus-risk-idUSBRE92G0BG20130317 Cyprus bank levy]</ref><ref>[http://www.marketoracle.co.uk/Article39536.html Cyprus Haircut]</ref><ref>[http://www.zerohedge.com/news/2013-03-22/ecb-set-fair-cypriot-standard-living-capital-controls Capital Controls in Cyprus]</ref>

As an example of the consequences of the two alternatives, Iceland did not try to save its private bankers but instead permitted them to default on private bond payments.<ref>[http://www.zerohedge.com/news/2013-01-26/only-3-minutes-worth-listening-davos Interview with Iceland's President Olafur Ragnar Grimson]</ref> Ireland on the other hand guaranteed private bank debt and in doing so subjected the taxpayers of that country to decades of payments for debts that were not incurred on their behalf or for their benefit. Many commentators have observed that in 2010 [[Iceland]] recovered much faster than other countries such as [[Ireland]].<ref>[http://www.smh.com.au/business/iceland-bounces-back-as-pain-leads-to-gain-20101208-18pvm.html Iceland Bounces Back]</ref><ref>[http://www.vanityfair.com/business/features/2011/03/michael-lewis-ireland-201103?printable=true When Irish Eyes Are Crying], Michael Lewis</ref> In his extensive analysis of the aftermath of the banking panic in Ireland, Michael Lewis wrote of his puzzlement that the timid Irish government thought it was beyond the bounds of acceptable political discourse to consider default on privately issued Irish bank bonds, when Iceland successfully defaulted and only after this did they nationalize their banking system.<ref>[http://www.vanityfair.com/business/features/2011/03/michael-lewis-ireland-201103?printable=true When Irish Eyes Are Crying], Michael Lewis</ref> Commentators still dispute the relative costs and benefits of the policies implemented in Iceland and Ireland. The inflation rate has remained higher but unemployment rate remained substantially lower in Iceland compared to Ireland.<ref>[http://mises.org/daily/6575/Inflation-Has-Not-Cured-Icelands-Economic-Woes Inflation and Iceland]</ref><ref>[http://www.marketoracle.co.uk/Article42958.html Bank Guarantee Bankrupted Ireland]</ref>

In the absence of outright default, some governments simply delay addressing the issues of debt and default, with the central bank buying government bonds and manipulating the stockmarket and other asset and commodity markets to keep solvency in the banking system and government alive.<ref>[http://lewrockwell.com/barnett/barnett39.1.html Are the Federal Reserve and Its Primary Dealer Banks Manipulating the Stockmarket?]</ref><ref>[http://www.gold-eagle.com/editorials_12/lundeen061712.html Market Manipulation]</ref> Time may allow re-inflation of the markets through the gradual injection of new [[debt money]] into the system through new borrowings. It is a rare "[[black swan]]" event for a cluster of private businesses or banks to default at the same time and governments often hope that this will not happen again once it has happened already. However, if the crisis is one of national solvency, waiting passively for recovery may only delay - and exacerbate - the final catastrophe as the debt-based monetary system pushes all businesses slowly towards the next crisis by confusing and misleading market participants with false price signals, particularly as they relate to interest rates. Once the next crisis hits because of even more confused price signals due to government interference in the market for money, time is something panicked financiers and investors are least likely to want to give up when the threat is never getting their [[money]] out of the imploding investment [[bubble]]. In extreme cases [[bank]]s could set up "independent" corporate investment vehicles to buy the assets associated with the [[bad debt]],<ref>[http://www.dealbreaker.com/2007/10/citigroup_looks_to_lend_money.php Citigroup looks to lend money]</ref> thereby allowing [[borrower]]s to liquidate their investments and allow time for the markets to re-inflate. Alternatively, these "sour" loans, that have gone bad through too much debt overwhelming the markets, could be dumped or "hidden" on the central bank's balance sheet, and swapped for more secure government debt (financed through compulsorily acquired taxes, which are immune from the risk of private bankruptcy). However the holding costs involved in these measures would be extremely high and would not guarantee that the losses could be averted if no new gullible investors could be found to offload these distressed assets.<ref>[http://www.youtube.com/watch?v=n8w6Nx2rfiE A Wikileaks for the Fed?]</ref> More fundamentally, these short-term "parachutes" used after bubbles burst do not save ordinary borrowers from [[foreclosure]] and [[bankruptcy]], nor do they address the pernicious long-term dysfunctional aspects of [[fractional reserve banking]] described above. These problems are temporarily averted, only to be dealt with yet again by the next generation of indebted governments and peoples.<ref>[http://www.informationclearinghouse.info/article18431.htm The Era of Global Financial Instability, by Mike Whitney]</ref><ref>[http://www.youtube.com/watch?v=n8w6Nx2rfiE A Wikileaks for the Fed?]</ref> Simply deferring the crisis and repeatedly bailing out the banks may simply entrench misallocation of resources within the financial and governmental sectors, starving private businesses of the savings needed to invest and produce.<ref>[http://www.zerohedge.com/news/2013-01-26/only-3-minutes-worth-listening-davos Interview with Iceland's President Olafur Ragnar Grimson]</ref>

The preferred long-term free market solution (outright default and a return to free market money and the abolition of legal tender and central banks) is extremely unlikely.<ref>[http://seekingalpha.com/article/273466-4-reasons-the-u-s-will-never-return-to-a-gold-or-silver-standard 4 Reasons the US Will Never Return to a Gold or Silver Standard]</ref> In addition, given that bankers and central banks "stole" most of the people's gold, with mass confiscations dating back to the 1930s in the US<ref>[http://www.gold-eagle.com/editorials_08/nielson031411.html The Great Gold Bait-And-Switch] Jeff Nielson</ref> and earlier in Europe,<ref>[http://www.lewrockwell.com/north/north107.html Buyers of Gold], Gary North</ref> an immediate and uncompensated<ref>[http://theeconomiccollapseblog.com/archives/10-things-that-would-be-different-if-the-federal-reserve-had-never-been-created 10 Things That Would Be Different]. Note: "uncompensated" in this context means "without allowing widespread debt default with minimal punishment" or "without the issuance of debt-free money to the general populace prior to a return to the gold standard"</ref> return to the gold standard now would simply further enrich bankers and impoverish workers through crushing deflation, as the value of the assets the middle class had previously saved in (housing and mutual funds) collapsed and gold (the "elite banker's money") suddenly soared in value,<ref>[http://www.zerohedge.com/news/2013-02-26/central-banks-cannot-create-wealth-only-liquidity Central Banks Cannot Create Wealth]</ref> allowing bankers yet another generation of largesse from past theft. It should be noted that one of the principal financial assets of both the IMF and the US central bank is confiscated gold (the other being government bonds).<ref>[http://www.xat.org/xat/worldbank.html The History of Money]</ref> Less than 1% of all pension fund assets held by the general public are currently allocated to physical precious metals and many mutual funds have mandates effectively prohibiting them from holding physical precious metals.<ref>[http://sgtreport.com/2011/07/gold-silver-and-pension-funds-portfolio-diversification-myths/ Gold, Silver and Pension Funds]</ref> If the gold price were to soar, the very institutions most responsible for financial disorder would be those most likely to benefit from the chaos, having already positioned themselves to benefit from any price explosion in gold.

Given that both the Icelandic and radical free market solutions are effectively impossible to implement to any significant extent, some analysts of the current debt-based monetary system consider that, after decades of excess debt and fiat money, the current capital structure is so distorted and malinvested, the food supply so industrialized and vulnerable to shocks, and the environment generally so polluted from government-protected mining and mass industrialization that there is no hope for the vast majority of the middle class and indeed the mass of humanity in the coming decades as a combination of periodic confiscation and selective debt monetization destroys any stability in the world economy.<ref name="death"/>

Getting back to a market-based banking system would require, at minimum: (1) abolition of all deposit insurance; (2) eliminating the doctrine of "Too Big to Fail" by prohibiting the central bank from buying any assets from insolvent banks; and (3) allowing the market to set interest rates by removing this price fixing power from the central bank and allowing the real inter-bank market to set interest rates.<ref>[http://bastiat.mises.org/2012/06/misesians-in-mordor-the-video/ Misesians in Mordor]</ref> However, such changes to the global monetary system would likely trigger immediate bank runs on the weakest banking institutions and (most likely) a systemic crisis, resulting in a sudden deep depression in the short term and a period of minimal or no capital investment in the medium term as access to lending dried up from suddenly illiquid financial institutions. Although in the minds of many Austrians, the resulting system would be greatly preferable to the current dysfunctional and unsustainable system, the transition period would likely be so traumatic that no democratic government (or no government at all) would likely countenance such deregulation, nor would they likely be allowed to by the banks themselves.

Government and banking have become so intertwined there is virtually no difference between them, as banks bail out governments who in turn bail out banks in Ponzi scheme fashion.<ref>[http://www.guardian.co.uk/commentisfree/2012/mar/22/greece-european-banks-eurozone European banks saving Greece or themselves?]</ref>

Coercive, rule-bound government, by its very nature, can only perpetuate itself if it constantly maintains a monopoly of force and is widely respected as the final arbiter of disputes between any two parties within its jurisdiction.<ref>[http://www.dailypaul.com/140907/hans-hoppe-on-why-he-thinks-limited-government-is-impossible Hans Hermann Hoppe on why limited government is impossible]</ref> Governments do not obtain their revenue through donations or voluntary payments but rather either tax the populace or print fiat money to spend on projects the government deems worthwhile. There is therefore an inherently dangerous power in government spending. Good government exists to provide public goods, regulate externalities and protect and enforce property rights.<ref>[http://blog.mises.org/6546/james-wilson-on-the-purpose-of-government-and-the-constitution/ James Wilson on the purpose of government], James Galles</ref> However, if government force is used not for public purposes but to protect and enhance the power of a tiny political and financial elite, parasitic thieving forces can take over monopoly government and destruction of the economy can occur without the ability of the people to revolt or defend themselves against the depredations of government force.<ref>[http://www.lewrockwell.com/orig11/wile13.1.html One World Government], Hans Hermann Hoppe</ref><ref>[http://www.youtube.com/watch?v=DNcDu0z9UfQ Matt Tiabbi Interview on UBS Scandal]</ref> Destructive policies can therefore continue for longer than the survival of the economy itself, especially if people have been lulled into complacency by a long history of relatively benign government whilst parasitic forces slowly take over power from behind the scenes.<ref>[http://www.lewrockwell.com/orig11/wile13.1.html One World Government], Hans Hermann Hoppe</ref> Some consider that modern democracy has been subverted and that the two-party choices being presented today are a charade, with little real difference between duopoly political parties, which are just shams to cover the slow but inexorable takeover of the levers of power by the financial "elite", who do not respect nor care about the will of the people, who they consider too stupid or powerless to be treated seriously.<ref>[http://www.youtube.com/watch?v=DNcDu0z9UfQ Matt Tiabbi Interview on UBS Scandal]</ref><ref>[http://globaleconomicanalysis.blogspot.com/2011/06/vote-for-whoever-you-want-bailout.html Vote for Whoever You Want], MISH</ref><ref>[http://lewrockwell.com/wile/wile36.1.html Stop Clinging to False Hope], Anthony Wile</ref><ref>[http://www.marketoracle.co.uk/Article28949.html United States of Denial], James West</ref> Since the mid-1990s and even earlier it has been argued by many commentators that the gold default of August 15, 1971 would inevitably lead to economic disaster due to the distorting and parasitic effects unlimited fiat money and credit creation would have on the productive private economy.<ref>[http://dailyreckoning.com/armageddon-can-wait/ Armageddon Can Wait], Bill Bonner</ref><ref>[http://www.nytimes.com/2011/08/01/business/deal-may-avert-default-but-some-ask-is-that-good.html?pagewanted=1&_r=1&hpw Deal May Avert Default, but Some Ask 'Is That Good?']</ref><ref name="Landis_Reprieve" /> The relentless exponential growth in retirement and welfare benefits will now be enough to bankrupt many Western governments (including the United States).<ref name="Landis_Reprieve" /><ref>[http://www.amazon.com/Boomergeddon-Deficits-Government-Devastate-Retirement/dp/1892538539/ref=sr_1_1?ie=UTF8&qid=1305008253&sr=8-1 Boomergeddon], James A. Bacon Jr</ref> No one in power today appears willing to tackle either the corrupt banking industry or government largesse.<ref>[http://www.youtube.com/watch?v=DNcDu0z9UfQ Matt Tiabbi Interview on UBS Scandal]</ref><ref>[http://globaleconomicanalysis.blogspot.com/2011/06/vote-for-whoever-you-want-bailout.html Vote for Whoever You Want], MISH</ref><ref>[http://www.prudentbear.com/index.php/thebearslairview?art_id=10538 Sayonara, Washington], Martin Hutchinson</ref> Too many in power have a vested interest in the continuation of the system of spiraling inflation and debt to stop it, even if it could be stopped.<ref>[http://www.youtube.com/watch?v=DNcDu0z9UfQ Matt Tiabbi Interview on UBS Scandal]</ref><ref>[http://www.zerohedge.com/article/guest-post-global-economy-burns-while-its-leaders-fiddle Global Economy Burns, While Its Leaders Fiddle], Nomi Prins, ZeroHedge</ref> Whilst the general economy suffers, old infrastructure collapses, man-made environmental crises abound, retailers go bankrupt, millions are foreclosed upon and are left homeless (whilst at the same time hundreds of thousands of houses lie empty and decaying) and real average incomes are decimated, perversely, banking bonuses and lobbyists' incomes have skyrocketed and the powers of the Fed and other central banks have increased because of increased regulatory duties despite their previous failures.<ref>[http://www.guardian.co.uk/politics/2011/jan/10/banks-unlimited-bonuses-ministers Banks given go-ahead to pay unlimited bonuses], Guardian UK</ref><ref>[http://www.creditcrunch.co.uk/forum/topic/9253-banking-cheats-will-always-prosper/ Bank Cheats Will Always Prosper], CreditCrunch.co.uk</ref><ref>[http://dailyreckoning.com/the-expanding-industry-of-us-government/ The Expanding Industry of US Government], Bill Bonner</ref> Despite this obvious incompetence and despite repeated failures of policy at the highest levels, anyone advocating solutions beyond those approved within failed mainstream two-party thought is commonly labelled "insane", "crazy" or an "extremist".<ref>[http://www.salon.com/news/opinion/glenn_greenwald/2010/05/28/crazy Who are the real "crazies"?], Glenn Greenwald, Salon.com</ref><ref>[http://lewrockwell.com/orig11/mullen-t4.1.1.html Extremism is the New Race Card], Tom Mullens</ref><ref>[http://www.telegraph.co.uk/finance/financialcrisis/8669352/Global-slump-warnings-if-US-triggers-insane-default.html Global slump warning if US triggers 'insane' default], Ambrose Evans-Pritchard</ref> Noted gold investor, Jim Sinclair, has publicly stated that the chaos has one cause - bankers have bought governments around the world and today's bankers are little more than irredeemably shallow "sociopaths", unable to grow a conscience and unable to foresee or care about the broader societal consequences of their actions beyond their own incestuous social groupings.<ref>[http://jsmineset.com/2009/08/31/china-invokes-a-stop-loss-on-otc-derivatives/ OTC Derivatives], Jim Sinclair</ref><ref>[http://maxkeiser.com/2011/07/17/alex-jones-on-satanic-rituals-of-bohemian-grove/ Alex Jones on Bohemian Grove], RTTV</ref> Leading British specialists in the pathology of the psychopath, Professors Robert Hare and Paul Babiak suspect the banking industry does indeed attract psychopaths and probably has a much higher proportion of mentally unstable psychopaths as executives compared to other industry sectors, although their comprehensive test (determining the degree of psychopathology in the workplace) has yet to be applied to the banking sector or to senior government officials or politicians.<ref>[http://www.ft.com/intl/cms/s/0/41fe2882-9cbe-11e0-bf57-00144feabdc0.html#axzz1QH9AQOwG Alfred Hitchcock' 'The Bankers'], James Makintosh, FT.com</ref> Michael Price, co-director of the Centre for Culture and Evolutionary Psychology at Brunel University in London agrees that the characteristics that make for good traders and investment bankers are very similar to those that define psychopaths. Former UK drug tsar David Nutt has stated that the banking crisis was caused by too many bankers taking cocaine.<ref>[http://www.telegraph.co.uk/finance/financialcrisis/9993266/Financial-crisis-caused-by-too-many-bankers-taking-cocaine-says-former-drugs-tsar.html Financial crisis caused by too many bankers taking cocaine], ''Telegraph''</ref> Therefore, given their likely sociopathic mind-set and hedonistic cocaine drug culture, provided they themselves are acquiring a greater share of gross national income, many bankers simply do not care about the consequences and will continue to label others as "crazy" or "insane" or "terrorists" for so long as it gives them cover to engage in their own [[embezzlement|criminal]] conduct and for so long as it permits the in-bred corruption to continue at the highest levels.<ref>[http://www.mises.org/daily/6314/Why-Bankers-Avoid-the-Public-Eye Banking and the State]</ref><ref>[http://blogs.telegraph.co.uk/news/nilegardiner/100099341/joe-biden-compares-the-tea-party-to-terrorists-is-this-the-most-crass-and-nasty-white-house-in-modern-us-history/ Joe Biden compares the Tea Party to terrorists], Nile Gardiner, UK Telegraph</ref> If the charade collapses and the elite are threatened, they will simply kill anyone who threatens them, as they have proven to do repeatedly in the past.<ref>[http://www.lewrockwell.com/lewrockwell-show/2011/02/15/187-confessions-of-an-economic-hit-man/ Confessions of an Economic Hit-Man], John Perkins</ref>

It should be noted that average bankers still earn around US$370,000<ref>[http://www.guardian.co.uk/business/2011/jan/14/jp-morgan-bankers-share-10bn Anger as JP Morgan bankers get $10bn pay and bonus pot]</ref> (or around £236,000 in the UK)<ref>[http://www.guardian.co.uk/business/2011/feb/15/barclays-capital-average-pay-236000-pounds Barclays investment bankers see average pay rise to £236,000]</ref> and this has steadily increased even in the aftermath of the financial crisis. Those who head up the "Too Big To Fail" banks earn around US$18 million per year, with some executives doubling their own pay in 2010.<ref>[http://www.guardian.co.uk/business/2011/apr/02/lloyd-blankfein-executive-pay-bonuses Goldman Sachs CEO's pay nearly doubles despite slump in profits]</ref> Lawyers who service and support the international banking and business community are reported to be earning up to US$2 million a year even in small peripheral countries such as Australia.<ref>[http://www.afr.com/p/national/legal_affairs/talent_war_pushes_star_lawyers_pay_ZDlK7zEXWaISbNy1QCtIUO Anger as JP Morgan bankers get $10bn pay and bonus pot]</ref>

Given many of these people are not actually producing services people would voluntarily pay for in a genuine free market economy, many of these service providers associated with the issuance and distribution of monopoly currency would be made redundant or be rendered unemployable almost immediately upon a return to a true free market gold standard. It is to be expected that these people would be violently opposed to any change in the ''status quo'' given the dramatic change in lifestyle that this would necessitate. In particular, it is to be expected that these people would specifically oppose the abolition of legal tender laws and fight against any formal declaration by any government that fractional reserve banking is a form of [[embezzlement]] or counterfeiting, or that the current financial system is a [[Ponzi scheme]] (which are generally illegal in most Western countries if they are not government-supported).

Jim Sinclair suggests that many senior participants in the international banking and derivatives industry should be jailed<ref>[http://jsmineset.com/2010/10/31/jims-mailbox-573/ Debt Burden Being Transferred], Jim Sinclair</ref> to protect the public from repeatedly being "raped"<ref>[http://jsmineset.com/2010/11/21/in-the-news-today-713/ EU Ministers Said To Plan Meeting Over Ireland], Jim Sinclair</ref> by their scams and has the following conclusion on his website:<ref>[http://jsmineset.com/2010/11/09/in-the-news-today-701/ There is no practical solution], Jim Sinclair</ref>

{{quote|For years I have been telling you that there is NO PRACTICAL SOLUTION to the total of all the mistakes that have been made since Roosevelt, in a depression, started it all.}}

Jim Sinclair considers it too late to save the system<ref>[http://www.youtube.com/watch?v=IF24atvNkSo&feature=player_embedded Jim Sinclair Interviewed by James Turk] Quote: "Who needs enemies when we have the financial leadership we have?"</ref> and recommends people become self-sufficient and buy gold to await the inevitable collapse of the political and economic system and the associated breakdown in the division of labor.<ref>[http://jsmineset.com/2011/04/07/the-system-has-failed/ The System Has Failed], Jim Sinclair</ref>

Max Keiser has stated that the culture of actual ''physical'' sexual coercion and harrassment allegedly exhibited in the financial services industry is simply symptomatic and an outgrowth of a culture of ''financial'' rape and exploitation.<ref>[http://www.youtube.com/watch?v=skwj6e9xvH8&feature=player_embedded#at=102 Savers vs Speculators] Quote: Max Keiser: "Munich Re, a financial terrorist responsible for creating ghettos. Financially disadvantaged folks who are on the short end of the 'ghettoization' of the financial terrorist schemes...are forced to wear ''yellow armbands'' and be ''sex slaves'' for their German hosts." Stacy Herbert: "Yes. And be stamped on their arms afterward to prove that they were used." Max Keiser: "Yes. Let's not forget the little serial code-stamp on the wrist as part of the package." Stacy Herbert: "But Max, the story here is that this goes from the very bottom. These are just agents going door-to-door selling insurance products in the financial services industry. The top of the pyramid of the banking Establishment is Dominique Strauss-Kahn." Max Keiser: "This is a culture. Dominique Stauss-Kahn is part of the banking ''culture''. There's Dominique Strauss-Kahn, Lloyd Blankfein, Jamie Dimon, this guy Pandit over at Citigroup, the CEO just paid himself $42 million for stealing $420 million - they have a culture of predator behavior where once you - like a serial killer - once you steal money from people with mortgage fraud or with banking fees that are illegitimate or with collateralized debt obligations you get a taste for serial financial killing. You graduate to these higher crimes and you become a Dominique Strauss-Kahn or a Lloyd Blankfein or a Jamie Dimon where serial financial murder is part of your day-to-day life. That's the culture you live in."</ref> In order to be part of the system, you must be blind to its consequences. Therefore, no one with a conscience can become powerful enough within the system to fundamentally change trajectory from its current catastrophic path.<ref>[http://www.youtube.com/watch?v=WqyCjR9JEMA&feature=player_embedded Nothing Stops Banks], Matt Taibbi</ref>

Ironically, many victims of rape and abuse come to blame themselves and never fight back, preferring to adapt to a life of abuse or enslavement. This is called "learned helplessness" in psychological terms. Doug French finds a direct analogy between the dynamics of ''physical'' rape and ''financial'' abuse, with many indebted individuals ''blaming themselves'' for their predicament and refusing to default on their debts, even though it would be in their clear financial interest to do so.<ref>[http://mises.org/daily/5409/BatteredHomeowner-Syndrome Battered Homeowner Syndrome], Doug French. Quote: 'Lenore Walker is the pioneer in the field of battered-spouse syndrome, with her book The Battered Woman. She believes that experiencing the repeated cycles of violence can result in a spouse developing "learned helplessness," a psychological state identified by psychologist Martin Seligman. The abused believe they lack control over their situation and are convinced escape is impossible. Their motivation to escape diminishes as they become increasingly passive.

Walker explains that the constant cycles of violence and reconciliation result in the following beliefs:

The abused

believes that the violence was his or her fault,
has an inability to place the responsibility for violence elsewhere,
fears for his/her life and/or the lives of his/her children, and
has an irrational belief that the abuser is omnipresent and omniscient.

These beliefs are strikingly similar to what underwater homeowners feel.

The abused believes that the violence was his or her fault. "It was my own fault for buying a house at the top of the market in the first place and borrowing too much money to do it." "I made my bed, now I must sleep in it, no matter how much financial pain it causes me."

The abused has an inability to place the responsibility for violence elsewhere. "It's nobody's fault but my own," say people with 20/20 hindsight. "Nobody made me sign the mortgage. I'm so stupid. The bank doesn't have to negotiate with me."

The abused fears for his/her life and/or the lives of his/her children. "My credit will be ruined. I won't be able to rent an apartment. My low credit score may keep me from getting a job. I don't want to uproot the kids and have to admit that daddy and mommy made a financial mistake."

The abused has an irrational belief that the abuser is omnipresent and omniscient. The abuser in this case is the lender or owner of the mortgage. The borrower fears that these lenders can take everything they have, leave them with nothing, and make their lives miserable forever.

At the same time, default moralizers reinforce these feelings. They have no sympathy for those making a poor housing and mortgage choice. A person must suffer the consequences of their actions, it's claimed.'</ref>

John Perkins, author of ''Economic Hitman'', has openly stated that the U.S. government is merely a front runner for major corporate interests and has brutally assassinated leaders of countries where reform has been attempted.<ref>[http://www.youtube.com/watch?v=xmU9R-BaFIQ Max Keiser Interview with John Perkins]</ref> The zealotry and extremism against genuine and honest monetary reformers on the one hand and the payoffs and largesse given to unprincipled and corrupt supporters of the current monetary regime on the other ensure there is no path of reform left for those potential leaders with a conscience.<ref>[http://www.zerohedge.com/article/more-political-capture-goldman-hires-top-republican-fed-transparency-foe-spends-more-time-se More Political Capture], ZeroHedge</ref>

Dimitry Orlov, author of ''Reinventing Collapse'', has written extensively about the striking similarities between the collapse of the USSR and the multiple environmental, economic and social crises facing the USA. He also predicts economic, political and social collapse in much of the West and in particular predicts that peak oil will result in some countries being cut off completely from oil supplies resulting in sudden social upheaval and starvation and believes that it is too late for any kind of meaningful reform:<ref>[http://www.youtube.com/watch?v=KLdwzcA9ZdM&feature=player_embedded#at=997 Dimitry Orlov Interview with Max Keiser - ''Reinventing Collapse'']</ref>

{{quote|(US military adverturism overseas) is just a very striking example of being unable to stop, even though what you're doing isn't actually working...

By demolishing as much of the social infrastructure as exists in the country... you will end up with an even less literate population that will be unable to oppose the government, unable to stand up for themselves and demand that their rights and needs be met...

People who think they can somehow skirt the financial system are wrong. They will be dominated by the Bernankes of this world and others. There isn't really a way out except to make do without money. And that's kind of what I try to explain to people is: Reduce your needs for any kind of interaction with the official economy and you will do better.}}

Given these repeated financial crises arising from the fiat monetary system, many [[monetary reform]]ers predict that there will inevitably be widespread default or hyperinflation or depression - or most likely all three simultaneously in what Ludwig von Mises predicted would be a "final and total catastrophe" of our unsustainable, Ponzi-like, fiat monetary system.<ref>[http://mises.org/daily/5041/Whats-Behind-the-Currency-War What's Behind the Currency War], Anthony Mueller</ref> After this "catastrophe"<ref name="Landis_Reprieve">[http://www.goldensextant.com/SavingtheSystem.html Fiat's Reprieve: Saving the System, 1979-1987], Robert K. Landis, August 21, 2004.</ref> in which a significant proportion of the population may die through starvation or war<ref>[http://lewrockwell.com/bonner/bonner602.html We're all going to die]</ref><ref>[http://www.zerohedge.com/article/20-signs-horrific-global-food-crisis-coming?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+zerohedge%2Ffeed+%28zero+hedge+-+on+a+long+enough+timeline%2C+the+survival+rate+for+everyone+drops+to+zero%29 20 Signs], ZeroHedge</ref><ref>[http://www.lewrockwell.com/adams-m/adams-m15.1.html US Agriculture Collapse]</ref><ref>[http://www.marketoracle.co.uk/Article26605.html Population Reduction], Chris Kitze</ref><ref>[http://www.rickackerman.com/2011/03/getting-the-jump-on-a-possible-food-shortage/ Getting the Jump on Food Shortages], Marilyn Ackerman</ref><ref>[http://www.goldismoney2.com/archive/index.php/t-524.html?s=d418ff253326772a09e1a8d992da7753 Venetian Bankers and the Dark Ages]</ref><ref>[http://mises.org/daily/6142/The-Apocalyptic-Vision-of-The-Road The Road], Ben O'Neill</ref> a spontaneous market-induced return to the [[gold standard]] is anticipated to be the most likely result.<ref>[http://www.youtube.com/watch?v=VMngK0t5WkY Mike Maloney interview with Max Keiser], The Keiser Report</ref><ref name="Landis_Reprieve" /><ref>[http://globaleconomicanalysis.blogspot.com/2011/02/us-dollar-about-to-lose-reserve.html US Dollar About to Lose Reserve Currency Status: Fact or Fiction?], MISH</ref><ref>[http://www.marketoracle.co.uk/Article40253.html The Great Gold Redemption], Peter Schiff</ref> Other possible solutions following the catastrophe include a return to legally enforced full reserve banking combined with the issuance government-issued debt-free [[fiat currency]], or [[free banking]] and the issuance of private coinage and private money. If these solutions are not initiated soon, it can be expected that a complete financial "meltdown" will ensue at some stage, as environmental crises and destruction of arable land slow GDP growth in developing nations and fewer young people in developed economies can be found who are willing to go into debt in sufficient magnitude to pay off the debts that have already been accumulated.<ref name="Bonner_Swan" /><ref name="Landis_Reprieve" /> As extreme inequality increases, [[foreclosure]]s mount and financial crises repeatedly erupt, many believe a political crisis will eventually result in calls for revolution and fundamental [[monetary reform]].<ref>[http://www.youtube.com/watch?v=uV_gwvSibmM&feature=player_embedded#at=510 Max Keiser on Alex Jones]</ref><ref>[http://www.youtube.com/watch?v=VMngK0t5WkY Mike Maloney interview with Max Keiser], The Keiser Report</ref><ref name="Landis_Reprieve" /> However, as noted above, some commentators consider that it is already too late to avoid a combined financial, environmental and demographic catastrophe even if reform is now attempted.<ref>[http://globaleconomicanalysis.blogspot.com/2011/03/oil-prices-are-double-edged-sword-peak.html Peak Everything?], MISH</ref><ref>[http://www.population-security.org/28-APP2.html NSSM 200 Directive], Henry A. Kissinger, April 24, 1974</ref><ref>[http://www.youtube.com/watch?v=0KInB2rvgaY&feature=fvsr Eco Eco Disaster], Keiser Report</ref>

Even if worldwide economic catastrophe cannot be averted at this stage of the metastasizing financial crisis, choices will still need to be made by each government in response to the crisis. On-going, worsening, [[debt]]-created crises in the economy and society (and the unsustainable damage to the [[environment]] caused by debt-created [[overconsumption]]) are likely to turn monetary and economic policies either to the extreme left or to the extreme right, as there are a number of competing solutions to the debt-based monetary "problem".<ref>[http://www.youtube.com/watch?v=jqjyk2cx5WU&feature=player_embedded#at=696 Taste of Freedom E126], Max Keiser, Keiser Report</ref> It should be noted that some commentators consider that Western governments have in recent years chosen a combination of the "worst" of all possible options: bailing out banks and increasing government spending and indebtedness whilst periodically trying to enforce austerity against the middle class and the ordinary working class.<ref>[http://www.zerohedge.com/news/2013-01-26/daniel-hannan-destroys-3-unquestionable-myths-our-crisis Daniel Hannan Oxford Speech]</ref> Some have called Western government policy reactions to the financial crisis as a decisive move towards "Crony Capitalism" that is neither "free market" nor "socialist" but rather the last desperate acts of a corrupt banker-government cabal of "counterfeiters".<ref>[http://www.zerohedge.com/news/2013-02-06/guest-post-all-well All Is Well], Jim Quinn</ref><ref>[http://www.mises.org/daily/6314/Why-Bankers-Avoid-the-Public-Eye Banking and the State]</ref><ref>[http://www.marketoracle.co.uk/Article37021.html Why We Are Bailing Out the Banks], Jesse</ref><ref>[http://www.economist.com/news/books-and-arts/21565142-how-america-bailed-out-banks-rather-its-citizens-crisis-mismanagement How America bailed out the banks rather than its citizens] ''The Economist''</ref><ref>[http://www.lewrockwell.com/rothbard/frb.html Fractional Reserve Banking], Murray Rothbard</ref> If this is correct, the destruction of economic capital in those countries adopting the Crony Capitalist model in response to the financial crisis will likely result in the descent into quasi-Third World status.<ref>[http://seekingalpha.com/article/309501-how-the-u-s-is-quickly-becoming-a-third-world-country-part-1 How the US is quickly becoming a Third World Country], Seeking Alpha</ref><ref>[http://www.lewrockwell.com/spl2/us-becoming-third-world.html 10 Signs the US is becoming a Third World Country]</ref><ref>[http://www.youtube.com/watch?v=qDKvSMZNgjc Peter Schiff Rips Paul Krugman on Economy]</ref><ref>[http://www.zerohedge.com/news/2013-07-24/guest-post-bankers-own-world Bankers Own the World]</ref>

===Libertarians, Austrians and commodity money===

[[Libertarians]] and [[Austrian School]] supporters envision a voluntary society of free markets (where banks - however large - are allowed to fail if they cannot perform their obligations),<ref>[http://www.zerohedge.com/news/2013-01-26/daniel-hannan-destroys-3-unquestionable-myths-our-crisis Daniel Hannan Oxford speech]</ref> small government<ref>[http://www.prudentbear.com/index.php/thebearslairview?art_id=10473 Models of Capitalism], Michael Hutchinson</ref> and the abolition of monopolistic legal tender laws,<ref>[http://mises.org/daily/5562/The-Real-Solution-to-the-Debt-Problem The Real Solution to the Debt Problem], David D'Amato</ref><ref>[http://lewrockwell.com/paul/paul766.html Legalize Currency Competition], Ron Paul</ref> allowing money backed by a ''free market''<ref>[http://www.lewrockwell.com/blog/lewrw/archives/94712.html Subcommittee Explores Sound Money]</ref><ref>[http://mises.org/daily/5562/The-Real-Solution-to-the-Debt-Problem The Real Solution to the Debt Problem], David D'Amato</ref> [[gold standard]] or [[silver standard]] to come back in circulation (or some other free market money system such as Bitcoin).<ref>[http://www.salon.com/2013/03/22/a_libertarian_nightmare_bitcoin_meets_big_government/ Bitcoin]</ref><ref>[http://lewrockwell.com/north/north1009.html Counterfeit Gold Standards], Gary North</ref><ref>[http://lewrockwell.com/orig11/krolman5.1.1.html Accidentally Conceived in 1971], Arthur M.M. Krolman</ref><ref>[http://www.marketoracle.co.uk/Article27532.html Why Monetary Expansion Must Stop], Patrick Barron</ref><ref>[http://www.marketoracle.co.uk/Article26339.html Silver and Opium], Antal E. Fekete</ref><ref>[http://www.marketoracle.co.uk/Article25212.html The Faults of FRB], Thorsten Polleit</ref> It should be noted that even a partial return to the gold standard (allowing foreign central banks to redeem US government bonds in US gold) would result in the gold price having to rise to approximately $20,000 per ounce.<ref>[http://www.zerohedge.com/news/2013-02-26/central-banks-cannot-create-wealth-only-liquidity Central Banks Cannot Create Wealth]</ref><ref>[http://www.youtube.com/watch?v=2rJspP6q3g8 Mike Maloney Interview with Max Keiser]</ref>

It must be emphasized that a ''necessary'' pre-condition in establishing a true free-market order would be the complete abolition of all legal tender laws<ref>[http://www.nysun.com/opinion/ron-paul-upping-the-ante-in-his-campaign/87502/ Ron Paul Upping the Ante]</ref> and the abolition of monopolistic central banking, including repeal of the [[Federal Reserve Act]] of 1913.<ref>[http://mises.org/daily/5562/The-Real-Solution-to-the-Debt-Problem The Real Solution to the Debt Problem], David D'Amato</ref><ref>[http://www.drschoon.com/articles%5CSilverGoldAndTheLastAmericanHeroJFK.pdf Silver, Gold and the Last American Hero JFK], Darryl Robert Schoon. Extracted quote from Ron Paul: "The United States Constitution grants to Congress the authority to coin money and regulate the value of the currency. The Constitution does not give Congress the authority to delegate control over monetary policy to a central bank. Furthermore, the Constitution certainly does not empower the federal government to erode the American standard of living via an inflationary monetary policy." Note: Another argument – that the power to "coin" money precludes issuance of paper money, and that the government must redeem paper money with "precious metal" – was dismissed as frivolous in ''Milam v. United States'', citing the Legal Tender Cases.</ref><ref>[http://www.lewrockwell.com/blog/lewrw/archives/73833.html End the Fed], Freedom Watch</ref><ref>[http://mises.org/daily/4860 Money: Sound and Unsound], Mark Thornton commentary on Joseph Salerno's book</ref><ref>[http://www.prudentbear.com/index.php/thebearslairview?art_id=10471 Gold Standard Renaissance?]</ref><ref>[http://www.marketoracle.co.uk/Article24632.html The Gold Standard Never Dies], [[Lew Rockwell]]</ref><ref>[http://www.prudentbear.com/index.php/thebearslairview?art_id=10471 Gold Standard], Michael Hutchinson</ref><ref>[http://mises.org/store/Money-Bank-Credit-and-Economic-Cycles-P290C0.aspx Money, Bank Credit and Economic Cycles], Jesus Huerta de Soto, Mises Institute ISBN: 978-1-933550-39-8</ref><ref>[http://radio.goldseek.com/griffin04.10.10.php Goldseek interview] with [[G. Edward Griffin]]</ref><ref>See also these [[Murray Rothbard]] articles: [http://www.mises.org/money.asp What Has Government Done to Our Money?], [http://www.mises.org/story/1829 The Case for the 100% Gold Dollar]; [http://www.lewrockwell.com/rothbard/cartelization.pdf The Fed as Cartel], [http://www.lewrockwell.com/rothbard/rothbard191.html Private Coinage], [http://www.lewrockwell.com/rothbard/rothbard190.html Repudiate the National Debt]; [http://www.lewrockwell.com/rothbard/rothbard181.html Taking Money Back], [http://www.lewrockwell.com/rothbard/rothbard163.html Anatomy of the Bank Run], [http://www.lewrockwell.com/rothbard/rothbard128.html Money and the Individual]</ref> "Capitalism" or "the free market" cannot be blamed or held responsible for current dire economic conditions given this coercive government prohibition against competition in currency creation.<ref>[http://mises.org/daily/5562/The-Real-Solution-to-the-Debt-Problem The Real Solution to the Debt Problem], David D'Amato</ref> Some Keynesians dismiss this desire to return to the gold standard by pointing out that financial crises occurred prior to the creation of the Fed.<ref>[http://www.pbs.org/newshour/businessdesk/2013/06/paul-krugman-on-why-david-stoc.html Paul Krugman Interview]</ref><ref>[http://www.frbsf.org/economic-research/publications/economic-letter/2013/may/crises-before-after-creation-fed/ Crises Before and After the Fed]</ref> Austrians counter by stating that such crises, although possibly less frequent, have been more severe and long-lasting ''after'' the creation of the Fed.<ref>[http://mises.org/daily/3466 ABCT]</ref> In addition even those "panics" which occurred prior to the creation of the Fed had monetary causes relating to fractional bank regulation and speculation.<ref>[http://mises.org/document/695/ Panic of 1819}</ref> Some Libertarians would also support experimentation with [[full reserve banking]],<ref>[http://mises.org/daily/4860 Money: Sound and Unsound], Mark Thornton commentary on Joseph Salerno's book</ref><ref>[http://mises.org/store/Money-Bank-Credit-and-Economic-Cycles-P290C0.aspx Money, Bank Credit and Economic Cycles], Jesus Huerta de Soto, Mises Institute ISBN: 978-1-933550-39-8</ref><ref>[http://www.mises.org/Books/mysteryofbanking.pdf Murray Rothbard, ''The Mystery of Banking'']</ref> recognizing that when fractional-reserve banking is combined with the gold standard a strong cyclical bias (and the systematic transfer of real wealth to the banking system) is normally inevitable.<ref>[http://mises.org/daily/5174/Life-with-the-Fed-Sunshine-and-Lollipops Life With The Fed], Thomas Woods</ref><ref>[http://mises.org/daily/5185/The-Need-for-100-Reserves The Need for 100% Reserves], Frank D. Graham</ref> Those Libertarians who support full reserve banking would strongly support more flexible and forgiving bankruptcy laws in a fractional reserve banking environment, recognizing that no stigma should be attached to bankruptcy given the anti-Libertarian "unjust acquisition" of real wealth implicit in central banking, compulsory legal tender laws, fractional reserve banking and taxation.<ref>[http://mises.org/daily/4860 Money: Sound and Unsound], Mark Thornton commentary on Joseph Salerno's book</ref><ref name="Repudiating the National Debt">[http://mises.org/article.aspx?Id=1423 Repudiating the National Debt], Murray Rothbard</ref><ref>[http://www.mises.org/Books/mysteryofbanking.pdf Murray Rothbard, ''The Mystery of Banking'']</ref><ref>[http://gonzalolira.blogspot.com/2010/12/want-to-ruin-your-own-country-assume.html Want to Ruin Your Country?]</ref>

In the absence of sound money, over time large private corporations become mere extensions of powerful government and banking fiat.<ref>[http://www.zerohedge.com/news/2013-04-03/david-stockman-keynesian-endgame The Keynesian Endgame], David Stockman</ref><ref name="death"/><ref>[http://mises.org/rothbard/newlibertywhole.asp For A New Liberty], Murray Rothbard</ref><ref>[http://news.goldseek.com/EuroCapital/1313178959.php The Fix is In], Peter Schiff</ref> David Stockman has stated the following:.<ref>[http://www.zerohedge.com/news/2013-04-03/david-stockman-keynesian-endgame The Keynesian Endgame], David Stockman</ref>

{{quote|It not only shows that the so-called recovery is tenuous and highly skewed to a small slice of the population at the top of the economic ladder, but also that statist economic intervention has now become wildly dysfunctional. Largely based on opulence at the top, Wall Street brays that economic recovery is under way even as the Main Street economy flounders. But when this wobbly foundation periodically reveals itself, Wall Street petulantly insists that the state unleash unlimited resources in the form of tax cuts, spending stimulus, and money printing to keep the simulacrum of recovery alive.}}

Libertarians such as Murray Rothbard argue that in such a toxic monetary environment resource allocation is perverted by some or all of the following factors: corrupt alliances between so-called "private corporations" (which are often extensions of government or banking interests) and regulators; increasingly intensive business structures to suit the needs of a concentrated and cartelized banking system; and the constant overriding of small communities and local government planning with central government directives to satisfy the needs of big business.<ref>[http://news.goldseek.com/EuroCapital/1313178959.php The Fix is In], Peter Schiff</ref><ref name="death"/> In such a corrupted monetary system, libertarians argue that financial and man-made environmental crises cannot legitimately be blamed on "private" corporations but rather blame must fall squarely on the true source of the problem - centralized government control of credit and money, which in turn dilutes private property rights (especially in relation to traditional owners and farmers) and creates massive distortions in scarce resource allocation, with financial ''and'' environmental crises being the predictable consequence.<ref name="death"/><ref>[http://mises.org/rothbard/newlibertywhole.asp For A New Liberty], Murray Rothbard</ref><ref>[http://maxkeiser.com/2011/06/11/ote114-on-the-edge-with-peter-schiff/ Peter Schiff Interview with Max Keiser]</ref><ref>[http://www.marketoracle.co.uk/Article29029.html Getting Used to Life without Food], F. William Engdahl</ref>

Regarding the current accumulation of government bonds and private debt, many Libertarians believe that the creation of the [[Federal Reserve System|Federal Reserve]] under the [[Federal Reserve Act]] of 1913 was unconstitutional and consider that at least some of this accumulated debt should be canceled or forgiven ''prior'' to a return to the gold standard in recognition of its fundamental illegitimacy.<ref>[http://www.zerohedge.com/news/guest-post-federal-debt-criminal-scam-federal-reserve-criminal-syndicate Federal Debt As Criminal Scam], Charles Hugh Smith</ref><ref>[http://www.marketoracle.co.uk/Article29433.html The Never-Ending Economic Depression], Washington Blog</ref><ref>[http://www.zerohedge.com/article/antal-feketes-open-letter-ron-paul-impeach-bernanke Antal Fekete's Letter to Ron Paul]</ref><ref name="Repudiating the National Debt"/><ref>[http://www.youtube.com/watch?v=1zMv4Offm_8&feature=player_embedded#at=1341 Max Keiser Interview with Alex Jones]</ref><ref>[http://www.zerohedge.com/news/guest-post-federal-debt-criminal-scam-federal-reserve-criminal-syndicate Federal Debt As Criminal Scam], Charles Hugh Smith</ref><ref>[http://blog.mises.org/18590/roubini-thoroughly-confused-by-austrian-economics/ Roubini Confused], Justin Ptak</ref> Arguably this would be supported by the "just acquisition" jurisprudence of legal philosopher [[Robert Nozick]] and Libertarian advocate [[Murray Rothbard]].<ref name="Repudiating the National Debt"/> As Murry Rothbard states:<ref>[http://angloaustria.blogspot.com/2010/05/quote-of-day-on-repudiation.html The Ethics of Liberty], Murray Rothbard</ref>

{{quote|Many libertarians fall into confusion on specific relations with the State, even when they concede the general immorality or criminality of State actions or interventions. Thus, there is the question of default, or more widely, repudiation of government debt. Many libertarians assert that the government is morally bound to pay its debts, and that therefore default or repudiation must be avoided. The problem here is that these libertarians are analogizing from the perfectly proper thesis that private persons or institutions should keep their contracts and pay their debts. But government has no money of its own, and payment of its debt means that the taxpayers are further coerced into paying bondholders. Such coercion can never be licit from the libertarian point of view. For not only does increased taxation mean increased coercion and aggression against private property, but the seemingly innocent bondholder appears in a very different light when we consider that the purchase of a government bond is simply making an investment in the future loot from the robbery of taxation.}}

In late 2010, financial commentator Max Keiser started the [[Buy Silver Crash JP Morgan Campaign 2010]] in an attempt to expose the flaws underlying the [[fractional reserve banking]] system.<ref>[http://www.youtube.com/watch?v=1zMv4Offm_8&feature=player_embedded#at=1341 Max Keiser Interview with Alex Jones]</ref><ref>[http://www.youtube.com/watch?v=_IKbAmsGey0&feature=player_embedded#at=66 Bob Chapman Silver Predictions]</ref><ref>[http://www.guardian.co.uk/commentisfree/2010/dec/02/jp-morgan-silver-short-selling-crash Want JP Morgan to crash? Buy silver], Max Keiser</ref>

Spontaneous protests against the Federal Reserve and the current financial system commenced in September 2011 across the United States and current protests can be found on the [http://www.occupytogether.org/ OccupyTogether.org] website.

====Free Banking and Full Reserve Banking====

On the issue of the required level of bank reserves, Austro-libertarians are sharply divided on the optimal solution to eliminate the price distorting and destructive forces inherent in fractional reserve banking.<ref>[http://www.thedailybell.com/29047/Anthony-Wile-Antal-Fekete-Gold-Backwardation-and-the-Collapse-of-the-Tacoma-Bridge Antal E Fekete]</ref><ref>[http://mises.org/journals/qjae/pdf/qjae13_4_2.pdf Fractional Reserve Free Banking: Some Quibbles], Philip Bagus and David Howden</ref><ref name="Cochran_Free">John P. Cochran. [http://mises.org/daily/4898 ''Free Banking''], ''Mises Daily'', review of ''Free Banking: Theory, History, and a Laissez-Faire Model'' by Larry Sechrest</ref><ref>[https://mises.org/journals/qjae/pdf/qjae15_2_3.pdf Against Monetary Disequilibrium Theory], Laura Davidson</ref>

Some Austrian scholars advocate "free banking", where banks are legally permitted to engage in fractional-reserve banking activities ''provided'' they comply with the standard laws against fraud and are not supported in any way against the possibility of bank runs and are forced into bankruptcy should they not be able to pay their debts as and when they fall due.<ref name="Cochran_Free" /> Provided depositors are clearly made aware that their demand deposits are being lent out and are not universally available for immediate withdrawal and provided there is no way in which such banks are propped up in the face of bank runs, free banking advocates do not support outlawing fractional reserve banking as embezzlement ''per se''.

Advocates of this system of banking include Lawrence White, Steven Horwitz, George Selgin, and Kevin Dowd, amongst others.<ref name="Cochran_Free" /> F.A. Hayek also advocated the de-nationalization of money production and implicitly supported a free banking financial system in some of his works on monetary reform.<ref>[http://www.mises.org/store/Free-Market-Monetary-System-A-P553.aspx?AFID=14 ''Free Market Money System''] by [[F.A. Hayek]]</ref>

Rothbardian-oriented Austrian scholars advocate "[[full reserve banking]]", considering fractional-reserve banking and the associated issuance of irredeemable paper money to be inherently fraudulent, unethical, unjust, disruptive and dysfunctional, akin to embezzlement and counterfeiting.<ref>[http://www.zerohedge.com/article/citizen-sues-atlanta-fed-based-allegation-its-issuing-federal-reserve-notes-it-has-no-intent Citizen Sues Atlanta Fed], ZeroHedge</ref><ref>[http://mises.org/journals/qjae/pdf/qjae13_4_2.pdf Fractional Reserve Free Banking: Some Quibbles], Philip Bagus and David Howden</ref><ref>See for example these [[Murray Rothbard]] articles: [http://www.mises.org/money.asp What Has Government Done to Our Money?], [http://www.mises.org/story/1829 The Case for the 100% Gold Dollar]; [http://www.lewrockwell.com/rothbard/cartelization.pdf The Fed as Cartel], [http://www.lewrockwell.com/rothbard/rothbard191.html Private Coinage], [http://www.lewrockwell.com/rothbard/rothbard190.html Repudiate the National Debt]; [http://www.lewrockwell.com/rothbard/rothbard181.html Taking Money Back], [http://www.lewrockwell.com/rothbard/rothbard163.html Anatomy of the Bank Run], [http://www.lewrockwell.com/rothbard/rothbard128.html Money and the Individual]</ref> [[Full reserve banking]] would require banks to retain in reserve all deposits that are legally available for immediate withdrawal, and permit lending only from longer-term deposits.

Advocates of this system of banking include [[Murray Rothbard]],<ref name="The Mystery of Banking">[http://www.mises.org/Books/mysteryofbanking.pdf ''The Mystery of Banking''], Murray Rothbard</ref><ref name="The Case for a 100% Gold Dollar">[http://mises.org/story/1829 The Case for a 100% Gold Dollar], Murray Rothbard</ref> [[Jesus Huerta de Soto]],<ref>[http://www.mises.org/books/desoto.pdf ''Money, Bank Credit, and Economic Cycles''], Jesus Huerta de Soto, First English edition (2006), pp. 98-114</ref> [[Jörg Guido Hülsmann]],<ref>[http://mises.org/media/4014 The Economics of Legal Tender Laws], and [[Jorg Guido Hulsmann]] (includes detailed commentary on [[central banking]], [[inflation]] and [[fractional reserve banking|FRB]])</ref><ref name=FBFB>[http://mises.org/journals/rae/pdf/RAE9_1_1.pdf Free Banking and the Free Bankers], Jörg Guido Hülsmann, Quarterly Journal of Austrian Economics (Vol. 9, No. 1)</ref><ref>[http://www.lewrockwell.com/lewrockwell-show/2011/01/04/181-hyperinflation-ahead/ Interview with Jörg Guido Hülsmann], The Lew Rockwell Show</ref> amongst others.<ref>[http://mises.org/journals/qjae/pdf/qjae13_4_2.pdf Fractional Reserve Free Banking: Some Quibbles], Philip Bagus and David Howden</ref><ref>[http://mises.org/daily/4880 The Faults of Fractional-Reserve Banking], Thorsten Polleit</ref>

Commentators David Stockman and Michael Shedlock also support the creation of full reserve postal savings banks that do not lend out money from checking accounts.<ref>[http://globaleconomicanalysis.blogspot.com.au/2013/04/stockman-fires-back-at-krugman-labeling.html David Stockman Fires Back At Krugman]</ref> According to Michael Shedlock:<ref>[http://globaleconomicanalysis.blogspot.com.au/2013/04/stockman-fires-back-at-krugman-labeling.html David Stockman Fires Back At Krugman]</ref>

<blockquote>And the solution is so easy too. Open a bank that charges nominal fees for checking and makes no loans. Such a bank would not need loan officers or other high-priced personnel. It would offer safekeeping of money and simple checking accounts for a fee.

Those who want interest on their money should have to take a risk, the risk of a possible loss.

Finally, and as I have pointed out before, lending of checking accounts is outright fraud. Checking accounts are supposed to be money available on demand, but since Greenspan authorized Sweeps in 1994, almost none of it is.</blockquote>

Most recently, in late 2010, two British MP's, Douglas Carswell and Steven Baker, sought to introduce legislation into the British Parliament that would allow depositors to decide if their money should be lent out and for what period.<ref>[http://www.telegraph.co.uk/finance/financetopics/financialcrisis/8004540/The-radical-reform-that-would-end-boom-and-bust-in-banking.html ''The Radical Reform in Banking''], Toby Baxendale, ''Daily Telegraph'', 15 Sept 2010</ref> If this legislative reform were to pass, British depositors would have the option to elect to save their money in full reserve bank accounts.

In early 2013, the idea of full reserve banking began to reappear in mainstream circles, after other "remedies" appeared to fail or only defer the next crisis, but not solve the banking "problem".<ref>[http://www.telegraph.co.uk/finance/comment/jeremy-warner/10107375/The-banking-revolution-that-would-wipe-out-Britains-debts.html Banking Revolution]</ref> Even some "establishment" economists such as Jeffrey Sachs has openly criticized unregulated fractional reserve banking, and called for a clear legislative division between heavily regulated and controlled liquidity-supplying high-reserve fractional reserve banking and open unprotected speculation, which would be subject to risk of bankruptcy.<ref>[http://www.youtube.com/watch?feature=player_embedded&v=7VOWnnEphjI Jeffrey Sachs audio]</ref>

Antal E. Fekete of the New Austrian School advocates return of real bills (which are self-liquidating debt) and criticizes the Rothbardian position opposing fractional reserve banking as impractical and ahistorical.<ref>[http://www.thedailybell.com/29047/Anthony-Wile-Antal-Fekete-Gold-Backwardation-and-the-Collapse-of-the-Tacoma-Bridge Antal E Fekete]</ref> He has stated:

<blockquote>The altercation between the American Austrians and the New Austrian School of Economics is a tragic waste of talent. We should settle our differences not by mud-slinging and by calling names, but through high level scientific debates... I sincerely hope that they accept and we can join forces in preparing the ground for the triumph of the gold standard after a brief reactionary period in history dominated by the regime of irredeemable currency.</blockquote>

====Market Money: Gold and Silver and Crypto-Currency====
In the absence of reform, many Austrians and libertarians are actively buying gold and silver and transferring savings to Bitcoin which cannot be created at the whim of governments.<ref>[http://goldinvestingnews.com/26510/peter-schiff-gold-money-fiat-currency-price-outlook-central-banks-investing.html Peter Schiff on Gold and Money]</ref><ref>[http://www.ronpaul.com/on-the-issues/fiat-money-inflation-federal-reserve-2/ Honest Money]</ref><ref>[http://www.lewrockwell.com/paul/paul125.html Fiat Paper Money], Ron Paul</ref><ref>[http://www.mogamboguru.com/writings.html Mogambo Guru]</ref><ref>[http://www.youtube.com/watch?v=O2rsQhsTTbE Max Keiser on Bitcoin]</ref> Many Austrians believe gold and silver and other essential commodities are ideal investments during this period of fiat money expansion and experimentation, as no government in the history of the world has ever escaped economic catastrophe and debasement of the currency after adopting a pure fiat money<ref>[http://historysquared.com/2012/06/26/fiat-currencies-trend-towards-their-intrinsic-value-often-rather-quickly/ Fiat Currencies Trend Towards Their Intrinsic Value]</ref><ref>[http://www.zerohedge.com/news/2013-04-05/guest-post-more-monetary-quackery More Monetary Quackery]</ref><ref>[http://goldinvestingnews.com/26510/peter-schiff-gold-money-fiat-currency-price-outlook-central-banks-investing.html Peter Schiff on Gold and Money]</ref><ref>[http://www.ronpaul.com/on-the-issues/fiat-money-inflation-federal-reserve-2/ Honest Money]</ref><ref>[http://www.lewrockwell.com/paul/paul125.html Fiat Paper Money], Ron Paul</ref><ref>[http://www.professorfekete.com/articles/AEFFiatMoneyInDeathThroes.pdf Fiat Money in Death Throes], Antal E Fekete</ref><ref>[http://www.professorfekete.com/articles%5CAEFAmericanBasesGermanyGoldBasis.pdf American Bases], Antal E Fekete]</ref> and keeping money in bank deposits is becoming increasingly risky as governments renege on promises to keep depositors' money safe.<ref>[http://truthingold.blogspot.com.au/2013/04/the-frightening-truth-about-cyprus-bail.html?showComment=1365106177301 The Truth About the Cyprus "Bail In"]</ref><ref>[http://www.zerohedge.com/news/2013-04-02/ron-paul-great-cyprus-bank-robbery The Great Cyprus Bank Robbery], Ron Paul</ref>

===Neo-Chartalism and Modern Monetary Theory===

Neo-Chartalists and associated advocates of Modern Monetary Theory (MMT) also accept that the current bank-dominated monetary system is dysfunctional, but advocate reform ''within'' the strictures of a fiat monetary system rather than looking to return to a commodity-based monetary system.<ref>[http://www.cnbc.com/id/45795986/Modern_Monetary_Theory_and_Austrian_Economics Modern Monetary Theory and Austrian Economics], John Carney</ref>

Most advocates of MMT support deficit spending to support the economy, believing governments can never go bankrupt in a fiat monetary system.

Austrians and sound money advocates criticize supporters of MMT not in their description of the current monetary system (which many Austrians consider reasonably accurate) but for their "shallow" understanding of the dangers of unfettered government spending through fiat money creation and their "naive" support of deficit spending and inflationary policies as an "easy" way out of economic crises.<ref>[http://www.soundmoneyproject.org/?p=4881 The Upside-Down World of MMT], Robert Murphy</ref><ref>[http://www.zerohedge.com/news/sean-corrigan-crucifies-mmt Sean Corrigan Crucifies MMT], ZeroHedge.com</ref>

===Debt-free fiat money===

The concept of debt-free money is most notably represented by [[Michael Rowbotham]], [[Stephen Zarlenga]] of the American Monetary Institute, Bill Still producer of the well-known ''[http://www.youtube.com/watch?v=JXt1cayx0hs Money Masters]'' videos and [[Ellen Hodgson Brown]].<ref>[http://www.youtube.com/watch?v=6MKjlPmVVK4 Bill Still on gold reserves]</ref> They advocate various forms of "pure" fiat money issuance by government, without the need for the government to issue a bond to print or issue the fiat money. More recently, mainstream economists have begun to seriously consider the issuance of debt-free money as a policy solution to the current ongoing crisis.<ref>[http://blogs.reuters.com/anatole-kaletsky/2013/02/07/a-breakthrough-speech-on-monetary-policy/ A Breakthrough Speech on Monetary Policy], Anatole Kaletsky</ref><ref>[http://krugman.blogs.nytimes.com/2013/01/07/be-ready-to-mint-that-coin/ Be Ready To Mint That Coin], Paul Krugman</ref><ref>[http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/9970294/Helicopter-QE-will-never-be-reversed.html Helicopter QE will never be reversed], Ambrose Evans-Pritchard</ref>

Currently virtually all money issued in modern economies is initially sourced from debt; in other words, it is "debt money" because it is created via some entity (government or business or individuals) borrowing fiat money into existence and the money being created by a bank before it is spent by the government or by a business or by an individual. "Debt money" is therefore money created in parallel with debt or [[Credit (finance)|credit]] via the process of [[fractional reserve banking]] or the issuance of a bond from the central bank.

"Debt-free money" is a "true" or "pure" fiat currency issued by the [[Treasury]] of a [[central government]], where there is no requirement for its eventual return as a condition of its creation (except by way of payment of taxes).<ref name="death"/> This can occur either through [[debt monetization]] where the central bank exchanges government bonds with fiat money or where the central bank issues money directly to the government to spend without any bonds being created in the first place. In either case, the government gets to spend pure fiat money without any need to pay interest on bonds or to pay the money back to the bank in future. It is argued by Rowbotham and others that this method of issuing new money would allow for the substantial lowering of tax rates, would allow public works projects to be funded cheaply, and would stimulate economic development, if the fiat money is spent sensibly on inflation-lowering long-term capital projects.<ref name="death"/>

[[Michael Rowbotham]] seeks the cancellation of "unjust" debts (such as [[third world debt]]), and, crucially and most importantly, a [[social security]] [[safety net]] involving a guaranteed minimum [[social credit|debt-free income]] (sourced from government-issued debt-free money independent of any central bank) for all citizens in the debt-based economy. Under this proposal, every adult citizen would be given a livable debt-free income transferred electronically into their [[bank account]], simply by virtue of their [[citizen]]ship. They could then use this debt-free money to pay off their [[mortgage]]s or to live, debt-free, without being compelled to work as a [[wage slavery|wage slave]] in the market economy if they chose not to. The government would finance these payments simply by ordering the private banks to accept their electronic instructions as legal tender. It would therefore not result in the expansion of [[government debt]].<ref name="death"/>

Ex-U.S. Treasury Department analyst Richard C. Cook also supports the issuance of debt-free money and zero-interest credit by the central government and has provided a detailed blueprint of monetary reform recommendations to transition to a debt-free money supply.<ref name="marketoracle.co.uk"/>

Some commentators have speculated that the issuance of massive amounts of debt-free pure fiat money is already happening, and we are currently living in a massive money printing experiment, as so-called "quantitative easing" will never be reversed.<ref>[http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/9970294/Helicopter-QE-will-never-be-reversed.html Helicopter QE will never be reversed], Ambrose Evans-Pritchard</ref> Ambrose Evans-Pritchard has warned:<ref>[http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/9970294/Helicopter-QE-will-never-be-reversed.html Helicopter QE will never be reversed], Ambrose Evans-Pritchard</ref>

{{quote|If Lord Turner's helicopters are ever needed, we can be sure that the Anglo-Saxons and the Japanese will steal a march, while Europe will be the last to move. The European Central Bank will resist monetary financing of deficits until the bitter end, knowing that such action risks destroying German political consent for the euro project.

By holding the line on orthodoxy, the ECB will guarantee that Euroland continues to suffer the deepest depression. Once the dirty game begins, you stand aside at your peril.

A great many readers in Britain and the US will be horrified that this helicopter debate is taking place at all, as if the QE virus is mutating into ever more deadly strains.

Bondholders across the world may suspect that Britain, the US and other deadbeat states are engineering a stealth default on sovereign debts, and they may be right in a sense. But they are warned. This is the next shoe to drop in the temples of central banking.}}

====Properties====
According to its proponents, government-issued debt-free fiat currency (such as debt-free notes and coins) can circulate perpetually in the economy as "stable" money and although not as secure as [[hard currency]], government-issued debt-free notes and coins (such as United States Notes and silver certificates) do not have the same effects of debt-based money (which require pertpetual interest payments to be tied to the creatin of new money).<ref>[http://www.entrewave.com/freebooks/docs/a_pdfs/gnhm.pdf Honest Money]</ref> It should be noted however that fiat currency can be a source of [[hyperinflation]] if its production is not controlled, as the government has the potential to issue unlimited amounts of fiat currency - ''provided'' it is accepted as "money" by the private banking system.<ref>[http://mises.org/books/shorthistorypapermoney.pdf A Short History of Paper Money in the United States], William M. Gouge, Mises Institute</ref> Notably, the Federal Reserve reportedly threatened not to recognize the trillion dollar platinum coin should the Obama Administration try to mint one.<ref>[http://www.buzzfeed.com/zekejmiller/the-trillion-dollar-coin-was-killed-by-the-fed Trillion Dollar Coin Killed By Fed]</ref><ref>[http://webofdebt.wordpress.com/2013/01/18/the-trillion-dollar-coin-joke-or-game-changer/#more-5323 The Trillion Dollar Coin], Ellen Hodgson Brown</ref> Debt-free notes and coins in circulation (being defined as [[Money supply#M0|M0]]) now account for a tiny fraction of the total debt-based M3 [[money supply]] in all modern debt-based economies (and debt-free M0 is also generally less than 10% of the total [[Money supply#M2|M2]] money supply in most developed economies).<ref>[http://www.dollardaze.org/blog/?post_id=00216 Global Money Supply Ratios]</ref>

Instead of [[money]] being created "indirectly" and "furtively" at the point of loan creation by the private banking system, with periodic bailouts to already-rich bankers and a "boomerang" boom-bust cycle as debt levels expand and contract, this debt-free "pure fiat" money would be created directly and openly by the democratically elected government and permanently issued to its citizenry by way of instruction to the private banking system. An example would be the coining of a trillion dollar platinum coin by the US government to pay off some of the Federal debt and continue its deficit spending in times of recession or depression. There would be no requirement for this money to returned (plus interest) and be extinguished as a condition of its creation, which is the central feature of all debt money systems.

Michael Rowbotham argues that this system of "debt-free" money issuance would not dramatically raise consumer prices (or at least would not be as inflationary or as dysfunctional as the current compounding debt-based system). He argues that this would also reduce overconsumption and the associated environmental damage associated with debt-based consumerism. It would also give individuals the free time to engage once again in non-marketable religious, artistic and recreational activities if they chose to do so.<ref name="death"/>

It is acknowledged that, in the absence of tax rates which ensure the return of this "pure" fiat to government coffers, this would be "inflationary" in the traditional sense, but proponents of debt-free fiat money issuance argue that if this "pure" government spending is directed to capital works projects and other long-term projects, this "pure" fiat money issuance would not result in excess price inflation, although it would dramatically increase base money. Michael Rowbotham argues that if bank reserve and capital ratios were increased and bank regulations on derivatives were imposed ''at the same time'' as the increase in "pure" base money was occurring, the two policies would balance each other out and no appreciable price inflation would be felt by the public at large.<ref name="death"/> The increase in base money would be inflationary, but the increase in reserve requirements would be deflationary, resulting in no significant net increase in the total money supply (assuming the government was sufficiently skilled in balancing these forces through the transition to a predominantly debt-free monetary system).

It is to be expected that these policies would be violently opposed by the private banking "elite", as it would render impotent their control over the money supply, dissipating this crucial decision-making power away from its current power base, from private banks to elected governments.<ref>[http://www.thenewamerican.com/economy/economics/item/14238-obama%E2%80%99s-trillion-dollar-coin-exposes-federal-reserve-scam Obama’s Trillion-Dollar Coin Exposes Federal Reserve Scam], Alex Newman, ''New American''</ref><ref>[http://webofdebt.wordpress.com/2013/01/18/the-trillion-dollar-coin-joke-or-game-changer/#more-5323 The Trillion Dollar Coin], Ellen Hodgson Brown</ref> It would also be likely to reduce [[economic growth]], dramatically increase the cost of labor and, potentially, result in an exacerbation of price inflation and malinvestment.<ref>[http://globaleconomicanalysis.blogspot.com/2010/12/fatally-flawed-end-fed-proposal-from.html Fatally Flawed End the Fed Proposal], MISH</ref> However, Rowbotham, Zarlenga and Still all argue that this proposal would address the problem of inequality inherent in a debt-based monetary system and reduce the devastating impact of personal [[bankruptcy]] and allow individual citizens to quickly recover from financial hardship.<ref name="death"/> They also argue that this social security measure (and government spending in general) would not have to be paid for by future generations from future streams of [[income tax]].<ref name="death"/>

====Criticism of "Greenbacker" debt-free money issuance====
In late 2010, [[Ellen Hodgson Brown]] and Austrian School commentator [[Gary North]] engaged in an intense debate over the direction of [[monetary reform]], with gold-standard supporter [[Gary North]] accusing Brown of going down a path that inevitably leads to the economics of fascism and hyperinflation.<ref>[http://www.lewrockwell.com/north/north908.html Criticism of Ellen Hodgson Brown]</ref><ref>[http://www.lewrockwell.com/north/north912.html Ellen Betrays], Gary North</ref> Government deficit spending funded with either paper money or compliant public bank lending is not a substitute for private consumption due to the inability of coercive goverment to invest rationally long-term, given the [[economic calculation problem]] inherent in socialized economies and the interests of governments and politicians being very different from the average consumer.<ref>[http://dailyreckoning.com/downside-after-the-returns-stop-diminishing-part-ii/ Nazi Germany], Bill Bonner</ref> North argues that it is not possible to trust a coercive, non-market entity - government - to limit its spending in circumstances where pure fiat money is in the hands of politicians and that [[inflation]], being an invisible tax, is much harder to resist than regular taxes. Greedy, corrupt, short-sighted politicians could buy off special interest groups to get elected and the general public could only watch on the sidelines as the purchasing power of their dollars steadily declines; this decline would be blamed on currency speculators and eventually foreign currencies (including "natural" monies such as gold and silver and copper) would have to be banned and confiscated from the public to ensure continued use of depreciating fiat.<ref name="North_Congress">Gary North. [http://www.garynorth.com/public/7030.cfm "Economic Error #15: Congress Can Safely Be Trusted to Manage the Money System Without Any Price Inflation."]. Referenced 2011-02-24.</ref> The fundamental error of Brown's analysis, according to North, is that Brown expects the source of the problem - corrupt governments bought and paid for by bankers - to be the source of the solution. She calls for a move away from war spending, whilst recoginizing that the current fiat monetary system favors government spending on war.<ref>[http://www.marketoracle.co.uk/Article28831.html More Efficient Ways to Stimulate Economy], Ellen Hodgson Brown</ref> To date, she has yet to reconcile these inconsistencies in her writings.

[[Mike Shedlock]] agrees with the abolition of fractional reserve banking, but criticizes the concept on similar grounds as North. Commenting on a bill to end the Fed introduced by Representative [[Dennis Kucinich]], he wrote: "Neither sound money nor the free market comes from printing money into existence. Arguably the only thing worse than the Fed printing money out of thin air is Congress printing money out of thin air for the purpose of full employment and/or any other absurd ideas Congress has."<ref>[http://www.marketoracle.co.uk/Article25175.html Kucinich's End the Fed campaign fatally flawed], Mike Shedlock.</ref>

Peter Schiff also believes getting rid of the Fed and returning money issuance to Congress would be worse than the current system.<ref>[http://www.youtube.com/watch?v=kEDmj3qocag Doug Casey Interview with Peter Schiff]</ref>

Austrians criticize leftists' inability to see that printing money and government spending is not the same as voluntary spending by private individuals as government spending distorts the capital structure; does not result in lasting economic growth due to the [[economic calculation problem]]; and is not subject to normal cautious profit and loss considerations given that the government can continually recover from errors by simply printing the money it spends.<ref>[http://www.marketoracle.co.uk/Article28831.html More Efficient Ways to Stimulate Economy], Ellen Hodgson Brown</ref><ref>[http://www.youtube.com/watch?v=qDKvSMZNgjc Peter Schiff Rips Paul Krugman]</ref> They also avoid or ignore the fact that historically governments have often acted in their own self-interest and concentrated power in themselves and their corrupt associates and families rather than benignly ruling for the benefit of the populace and their long-term interests. Every sovereign - without exception - that has been given the unfettered power to print fiat money has eventually printed too much debt-free money and in the end had to ban competing currencies (such as foreign currency or metallic money), and face revolt, revolution, hyperinflation or other social catastrophe.<ref>[http://www.marketoracle.co.uk/Article39762.html Fiat Currency Collapse]</ref>

====Debt-free money issuance: Support from free market Austrians====
In contrast to Gary North's attacks on "Greenbacker" Ellen Hodgson Brown, and Mike Shedlock's criticism of debt-free money printing by Congress as the worst of all choices, noted Austrian monetary economist Joseph Salerno has voiced his support for the idea of debt-free money issuance ''in comparison to the current debt-based system'', if a choice is to be made between the two.<ref>[http://www.mises.org/daily/6350/The-Flipside-of-the-Trillion-Dollar-Coin The Flipside of the Trillion Dollar Coin]</ref> In his defense of the trillion dollar coin idea, he states the following:<ref>[http://www.mises.org/daily/6350/The-Flipside-of-the-Trillion-Dollar-Coin The Flipside of the Trillion Dollar Coin]</ref>

{{quote|Let me be clear: my intention is not to deny that the trillion-dollar coin is a ludicrous and dangerous idea; it is rather to point out that the Fed is a more ludicrous and dangerous idea.}}

In relation to the "dangers" of Congressional control of the money supply, Salerno responds as follows:<ref>[http://www.mises.org/daily/6350/The-Flipside-of-the-Trillion-Dollar-Coin The Flipside of the Trillion Dollar Coin]</ref>

{{quote|Obviously, congressional control of the fiat money supply is far from the ideal monetary system, which involves the complete separation of government and money through the establishment of a commodity money, such as gold, the supply of which is determined exclusively by market forces. Nonetheless, there is much merit in replacing the opaque and pseudo-scientific control of "the money supply process" by the entrenched bureaucrats of the Fed with overtly political control of money by elected officials and partisan Administration appointees.}}

Salerno outlines a number of advantages of "simple inflation" over the current debt-based round-about system of money creation:<ref>[http://bastiat.mises.org/2013/05/bring-on-the-helicopter-money-and-gut-the-fed/ Bring on the Helicopter Money - and Gut the Fed], Joseph Salerno</ref>

{{quote|...as a permanent policy, it would be a wonderful device for wresting control of monetary policy from un-elected, secretive, and pseudo-scientific Fed bureaucrats and placing it under a Congress subject to popular scrutiny and elections. Of course this would not be an ideal system, which would be a hard money consisting of a market supplied commodity like gold. But it would have a number of significant advantages over the present Fed-dominated system. First, as just noted, money creation by Congress would be far more transparent and understandable to the public than the arcane procedures by which the Fed expands the money supply. Second, the injection of new money directly into the economy via government purchases of goods and services would avoid the continual and systematic distortion of financial markets and the interest rate currently caused by Fed open market operations. This process of “simple inflation” as Mises called it would, therefore, certainly produce rising prices but would not generate business cycles of recurring booms and busts. Finally, the Fed could no longer operate as a bailer-outer of last resort, surreptitiously bailing out gigantic domestic and foreign financial institutions in the absence of discussion and consent by Congress and the knowledge of the public.}}

===Public Fractional Reserve Banks===

[[Ellen Hodgson Brown]] supports nationalization of the private banking system once the full losses on the banks' portfolios are recognized.<ref>[http://www.huffingtonpost.com/ellen-brown/restoring-economic-sovere_b_823697.html Restoring Economic Sovereignty], Ellen Hodgson Brown</ref><ref>[http://www.webofdebt.com/articles/new_theory.php Time for a New Theory of Money]</ref><ref>[http://globaleconomicanalysis.blogspot.com/2011/01/steve-keen-responds-to-world-economic.html Exponential Growth], MISH</ref><ref>[http://www.webofdebt.com/articles/force_nationalization.php Foreclosuregate could force bank nationalization]</ref><ref>[http://webofdebt.wordpress.com/2010/12/22/austerity-fails-in-euroland-time-for-some-%e2%80%9cdeficit-easing%e2%80%9d/ Austerity Fails in Europe], Ellen Hodgson Brown</ref> Ellen Hodgson Brown has repeatedly called for the creation of publicly-owned banks similar to the North Dakota model, where the interest earned by these state government-owned banks could be ploughed back into local economies financing public works and local government services instead of being sucked out of local communities into the major commercial banks.<ref>[http://www.marketoracle.co.uk/Article29338.html Why Aren't Banks Lending], Ellen Hodgson Brown</ref> <ref>[http://www.marketoracle.co.uk/Article39053.html Why Bankers Rule the World]</ref> She has cited numerous historical examples where public banks worked successfully for many decades, including in Australia and Costa Rica, as examples of the viability and benefit of public fractional reserve banks.<ref>[http://www.webofdebt.com/articles/commonwealth_bank_aus.php CBA]</ref><ref>[http://www.truthdig.com/report/item/public_banking_in_costa_rica_a_remarkable_little-known_model_20131111 Costa Rica]</ref>

Brown also supported "[[Quantitative easing|QE2]]" - which she described as a necessary and desirable funding of government spending via money printing rather than by the indirect means of issuing of interest-bearing government bonds, which simply allows private bankers to profit from costless money creation.<ref>[http://www.marketoracle.co.uk/Article24443.html QE2 and the Looming Threat of a Crippling Debt Service]</ref><ref>[http://www.marketoracle.co.uk/Article24719.html QE2 and Hyperinflation], Ellen Hodgson Brown</ref>

Many monetary reformers who call on the government to take back the money creation function from debt-supplying private for-profit banks also call for full reserve banking to remove the bank's alleged "embezzlement" and "counterfeiting" abilities.<ref>[http://www.thenewamerican.com/economy/economics/item/14238-obama%E2%80%99s-trillion-dollar-coin-exposes-federal-reserve-scam Obama’s Trillion-Dollar Coin Exposes Federal Reserve Scam], Alex Newman, ''New American''</ref><ref name="marketoracle.co.uk"/><ref>[http://www.monetary.org/ AMI website, calling on full-reserve banking]</ref>

It should be noted that if Austrian claims that [[fractional reserve banking]] produces [[Austrian business cycle theory|business cycles]] is correct, public ownership of banks will not stop periodic economic crises and business cycles from occurring, ''unless'' strong controls and very high reserve ratios are imposed on all banks. Many would consider this "solution" of publicly-owned fractional reserve banks merely perpetuating the problem.

Stephen Zarlenga's AMI organization has strongly criticized Brown's support of fractional reserve banking as perpetuating the very problems she seeks to solve. Jamie Walton, from the AMI, wrote the following review:<ref>[http://www.monetary.org/review-of-ellen-browns-the-web-of-debt/2010/12/ Review of Web of Debt], Jamie Walton</ref>

{{quote|Brown’s plan to takeover (rescue?) the big banks to continue a “fraud” within the safety of government is totally wrong. Placing the “fraud” in government doesn’t make it right, but might make it harder to stop. Does Brown realize that her statements and conclusions are inconsistent, and that what she proposes leads to exactly the same things that she’s claiming to be opposed to?

Experience shows that if the issue of money is unduly affected by commercial incentives, then, over time, “commercial loans” (i.e., debt) will dominate over more direct methods of issue. So we’d be kept in exactly the same position we’re in now: within a totally unnecessary, ever-growing and impossible-to-pay debt trap.

Obviously the sensible action to take is to remove the “fraud” and debt and retain a healthy and competitive banking sector. This is easily done with a law based on the existing provisions in the U.S. Constitution.

But Brown avoids this obvious solution and instead advocates that our government gets into banking.

It seems incredible that Brown is now advocating what she’s described throughout most of the book as fraud, counterfeiting and Ponzi, pyramid or ‘smoke-and-mirrors’ schemes. Why? Perhaps the answer lies in Brown’s apparent confusion and/or fundamental misunderstandings about the nature of money and the role of government in society, and about monetary history and monetary reform.}}

===Left-leaning ideas===
The highly successful "Icelandic Solution" of debt relief for the poor and criminal sanctions against corrupt bankers was implemented by a left-wing government<ref>[http://www.zerohedge.com/news/2013-01-26/only-3-minutes-worth-listening-davos Interview with Iceland's President Olafur Ragnar Grimson]</ref> although some question whether the policies truly reflected left-wing ideas given the constraints on Icelandic policy-making at the time.<ref>[http://reason.com/blog/2012/04/17/why-iceland-presidents-left-wing-critiqu Why Iceland President Left-Wing Critique is Right], ''Reason''</ref>

Some left-leaning [[social democrats]] would also support additional longer-term measures such as ''raising'' minimum wages immediately after a financial crisis (rather than reducing wage rates - which they argue only prolongs the depression through reduced spending), taxing the banking system and the implementation of strongly redistributive income and [[land tax]]es to ensure the financially dispossessed are "replenished" with income. They would also support a [[social security]] [[safety net]] involving the provision of unemployment benefits and government-supplied free medical care, education and other essential services and [[public goods]].<ref>[http://www.youtube.com/watch?v=g4yVhxDTom0 Steve Keen interview with Max Keiser]</ref> It is to be expected however that this coercive regulatory regime would result in the systematic destruction of the entrepreneurial class as profits are squeezed by rising costs. In addition, without the issuance of debt-free [[fiat currency]] the result of these programs would be the persistent, exponential, accumulation of [[government debt]], financed by the [[private banking]] system by the issuance of [[government bonds]]. If not properly managed, this could result in a progressively higher tax burden and may result in higher [[interest rates]] in the long term, as financiers require higher [[interest rates]] to lend to the increasingly indebted central government. Without the issuance of [[debt-free money]] these policies can be self-defeating, with the net result simply being that a larger stream of guaranteed income goes to the [[private bank]]ing system via the issuance of interest-bearing [[government bonds]] (which are purchased by the [[private banks]] "out of nothing" through [[fractional reserve banking]] techniques). This [[government debt]] must then be financed in perpetuity by compulsorily acquired [[tax]]es from future generations.

It could be argued that the early success of extreme so-called "right-wing" (but socialist government-guided) [[fascism]] in [[Nazi Germany]] and [[Italy]] in the period after [[World War I]] was a response to the economic chaos created by the debt-based monetary system in early 20th century [[Europe]]. Some of the economic policies introduced by [[Hitler]] and [[Mussolini]] were in direct response to the economic collapse and social [[anarchy]] caused by soaring government and personal debt levels in both countries in the post-[[Versailles Treaty]] era, and (indirectly) arose from the writings of [[Silvio Gesell]] and others on the nature of the problems associated with a debt-based [[monetary system]]. Although many [[historian]]s justifiably criticize many of the non-economic policies of the [[fascist]] governments of [[Germany]] and [[Italy]] during this period, the [[economics of fascism]] seemed to provide a degree of [[prosperity]] to the populace, and arguably achieved the government's stated objective of restoring economic and social order during the pre-[[World War II]] era.<ref>[http://www.webofdebt.com/articles/bankrupt-germany.php How a Bankrupt Germany Solved its Economic Problems], Ellen Hodgson Brown</ref> These economic policies and their results are the subject of vigorous debate even today.<ref name="North_National_Great">Gary North. [http://www.garynorth.com/public/7009.cfm "Historical Error #27: Hitler's National Socialist Economic Policies Ended the Great Depression in Germany."], ''GaryNorth.Com''. Referenced 2011-02-24.</ref> (See also [[Inflation in Nazi Germany]].)

Similarly it could be argued that [[socialism]] and [[communism]] were movements inspired by the inequalities caused by the intense (and in [[Karl Marx]]'s view unsustainable) concentrations of monetary wealth, power and influence inherent in the practice of [[fractional reserve banking]] in a [[laissez-faire]], [[monopoly]] [[capitalist]] environment (particularly when [[fractional reserve banking]] is combined with a [[gold standard]] or other [[hard currency]] [[monetary system]]).<ref>[http://www.zerohedge.com/news/2013-11-07/marc-faber-warns-karl-marx-was-right Karl Marx Was Right], Marc Faber</ref><ref>[http://www.nakedcapitalism.com/2009/02/steve-keen-roving-cavaliers-of-credit.html ''Roving Cavaliers of Credit'', Steve Keen, with commentary from Yves Smith at Naked Capitalism]</ref>

The [[communist]]/[[socialist]] solution to the problem of [[fractional reserve banking]] is simple: re-enfranchising workers through widespread organization and unionism, complete removal (and if necessary, violent non-democratic removal) of the allegedly "parasitic" financial, capitalist and upper classes, wholesale repudiation of [[government debt]] resulting in complete debt [[default]]; forced [[expropriation]] of [[land]] and wealth from the [[upper classes]] to the dispossessed and needy [[working classes]]; [[nationalization]] of the [[private banks]] (which has required armed [[coup]]s by the [[military]] in some past [[revolution]]s); and the return of the banking function from a dominant, speculative to a subordinate, administrative institution, where the banking system is reduced to a subservient arm of the centralized [[Leviathan]].<ref>[http://www.zerohedge.com/news/2013-11-07/marc-faber-warns-karl-marx-was-right Karl Marx Was Right], Marc Faber</ref> In this system, government-owned banks are directed by government policy; often provide different kinds of loans to different industry sectors at different interest rates depending on the perceived "needs" of the economy and the community; normally have a significant proportion of [[non-performing loan]]s due to weak or non-existent [[bankruptcy]] laws; and periodically "forgive" failed debts in recognition of the impossibility of some businesses in paying this debt money back. In addition, individuals are prohibited from possessing large property holdings, in excess of their individual needs.

It is to be expected that the [[profitability]] of the government-owned banking system would be more stable - but dramatically lower - than that in a debt-based [[capitalist]] economy. It is also to be expected that a significantly higher misallocation of resources could occur in this system, where lending decisions are "infected" by political considerations and are not made on the basis of expected [[return on investment]]. The risk of [[corruption]] in the banking system is also expected to be higher where there is no separation between the political and monetary systems in an economy. Market-oriented [[monetary reform]]ers and [[neo-classical]] economists therefore do not support [[nationalization]] of the [[private banking]] system.

It should be noted that partial [[nationalization]] of the [[private bank]]ing system would only be temporary, as any remaining [[private banks]] could still engage in unlimited [[fractional reserve banking]] and facilitate the eventual acquisition and control of any strategic assets in a partially socialized economic system. It is to be expected that in the absence of complete [[nationalization]] of the banking system, the [[private bank]]ing system would eventually dominate the financial system in any nominally [[socialist]] society.

==Corporatism, Crony Capitalism and Confiscation==
Assuming current trends continue, "Corporatism",<ref>[http://www.lewrockwell.com/2010/04/ron-paul/dont-call-obama-a-socialist/ Corporatism], Lew Rockwell</ref> "Rigged Market Capitalism",<ref>[http://maxkeiser.com/tag/rigged-market-capitalism/ Rigged Market Capitalism]</ref> or so-called "Crony Capitalism"<ref>[http://mises.org/daily/6540/The-American-Economy-is-Not-a-FreeMarket-Economy Crony Capitalism in America]</ref><ref>[http://www.zerohedge.com/news/2013-02-10/guest-post-note-fed-giving-banks-free-money-wont-make-us-hire-more-workers Note To Fed]</ref> will continue.<ref>[http://www.youtube.com/watch?v=zbQq33iTsrw Rigged bank rates]</ref> This means superficial respect for property rights but periodic confiscation when deemed necessary by a government-banker cabal who consider themselves above [[natural law]].<ref>[http://www.zerohedge.com/news/2013-09-18/why-obama-allowed-bailouts-without-indictments Why Obama Allowed Bailouts]</ref> This implies ongoing "immunity" for market manipulating banks on the basis that they are "too big to jail",<ref>[http://moneymorning.com/2012/12/28/too-big-to-jail-its-a-dark-day-for-the-rule-of-law/ Too Big To Jail]</ref><ref>[http://www.rollingstone.com/politics/news/gangster-bankers-too-big-to-jail-20130214 Gangser Bankers: Too Big to Jail], Matt Taibbi. Extract: 'At HSBC, the bank did more than avert its eyes to a few shady transactions. It repeatedly defied government orders as it made a conscious, years-long effort to completely stop discriminating between illegitimate and legitimate money. And when it somehow talked the U.S. government into crafting a settlement over these offenses with the lunatic aim of preserving the bank's license, it succeeded, finally, in making crime mainstream. UBS, meanwhile, was a similarly elemental case, in which the offenses didn't just violate the letter of the law – they threatened the integrity of the competitive system. If you're going to let hundreds of boozed-up bankers spend every morning sending goofball e-mails to each other, giving each other superhero nicknames while they rigged the cost of money (spelling-challenged UBS traders dubbed themselves, among other things, "captain caos," the "three muscateers" and "Superman"), you might as well give up on capitalism entirely and just declare the 16 biggest banks in the world the International Bureau of Prices. Thus, in the space of just a few weeks, regulators in Britain and America teamed up to declare near-total surrender to both crime and monopoly. This was more than a couple of cases of letting rich guys walk. These were major policy decisions that will reverberate for the next generation. Even worse than the actual settlements was the explanation Breuer offered for them. "In the world today of large institutions, where much of the financial world is based on confidence," he said, "a right resolution is to ensure that counter-parties don't flee an institution, that jobs are not lost, that there's not some world economic event that's disproportionate to the resolution we want." In other words, Breuer is saying the banks have us by the balls, that the social cost of putting their executives in jail might end up being larger than the cost of letting them get away with, well, anything. This is bullshit, and exactly the opposite of the truth, but it's what our current government believes. From JonBenet to O.J. to Robert Blake, Americans have long understood that the rich get good lawyers and get off, while the poor suck eggs and do time. But this is something different. This is the government admitting to being afraid to prosecute the very powerful – something it never did even in the heydays of Al Capone or Pablo Escobar, something it didn't do even with Richard Nixon. And when you admit that some people are too important to prosecute, it's just a few short steps to the obvious corollary – that everybody else is unimportant enough to jail. An arrestable class and an unarrestable class. We always suspected it, now it's admitted.'</ref> and the continued collusion of central banks with private banks to manipulate an increasing number of financial and commodity markets in a futile effort to control capitalism for their own survival, eventually destroying any semblance of functioning capitalism resulting in an increasingly volatile financial system.<ref>[http://www.zerohedge.com/news/2013-04-26/illuminati-were-amateurs-matt-taibbi-explains-how-everything-rigged The Illuminati Were Amateurs], Matt Taibbi. Extract: "Conspiracy theorists of the world, believers in the hidden hands of the Rothschilds and the Masons and the Illuminati, we skeptics owe you an apology. You were right. The players may be a little different, but your basic premise is correct: The world is a rigged game. We found this out in recent months, when a series of related corruption stories spilled out of the financial sector, suggesting the world's largest banks may be fixing the prices of, well, just about everything."</ref><ref>[http://www.youtube.com/watch?v=zbQq33iTsrw Rigged bank rates]</ref> Some believe we have already reached this point where world financial markets are completely artificial and prices in many markets no longer reflect reality.<ref>[http://www.youtube.com/watch?v=zbQq33iTsrw Rigged bank rates]</ref><ref>[http://www.gata.org/node/7096 Fed's blueprint for market manipulation]</ref> Even former Fed officials now admit QE simply involves newly created money being gifted to large Wall Street banks at the expense of the general population.<ref>[http://www.zerohedge.com/news/2013-11-12/former-fed-quantitative-easer-confesses-aplogizes-i-can-only-say-im-sorry-America I am sorry America]. Quote: 'In its almost 100-year history, the Fed had never bought one mortgage bond. Now my program was buying so many each day through active, unscripted trading that we constantly risked driving bond prices too high and crashing global confidence in key financial markets. We were working feverishly to preserve the impression that the Fed knew what it was doing... Trading for the first round of QE ended on March 31, 2010. The final results confirmed that, while there had been only trivial relief for Main Street, the U.S. central bank's bond purchases had been an absolute coup for Wall Street. The banks hadn't just benefited from the lower cost of making loans. They'd also enjoyed huge capital gains on the rising values of their securities holdings and fat commissions from brokering most of the Fed's QE transactions. Wall Street had experienced its most profitable year ever in 2009, and 2010 was starting off in much the same way. You'd think the Fed would have finally stopped to question the wisdom of QE. Think again. Only a few months later—after a 14% drop in the U.S. stock market and renewed weakening in the banking sector—the Fed announced a new round of bond buying: QE2. Germany's finance minister, Wolfgang Schäuble, immediately called the decision "clueless." That was when I realized the Fed had lost any remaining ability to think independently from Wall Street. Demoralized, I returned to the private sector. Where are we today? The Fed keeps buying roughly $85 billion in bonds a month, chronically delaying so much as a minor QE taper. Over five years, its bond purchases have come to more than $4 trillion. Amazingly, in a supposedly free-market nation, QE has become the largest financial-markets intervention by any government in world history.'</ref> Ongoing purchases of government bonds by central banks continue every month, keeping interest rates artificially low and allowing government spending to continue to expand, along with a volatile heavily indebted private economy.<ref>[http://www.youtube.com/watch?v=G1l7DY8kdz0 The Fed Unspun]</ref> If these "emergency" QE measures continue indefinitely this will eventually result in indefinite depression as markets are manipulated beyond the control even of the central banks, prohibiting market "clearing" and prohibiting the reallocation of resources away from the government and financial sectors.<ref>[http://prudentbear.com/index.php/guestcommentaryview?art_id=10742 Bernanke's Balance Sheet Ensures Disaster], Michael Pento</ref><ref>[http://www.zerohedge.com/news/2013-01-26/only-3-minutes-worth-listening-davos Interview with Iceland's President Olafur Ragnar Grimson]</ref><ref>[http://www.zerohedge.com/news/2013-02-06/guest-post-all-well All Is Well], Jim Quinn</ref><ref>[http://www.youtube.com/watch?v=zbQq33iTsrw Rigged bank rates]</ref> Recent events in Cyprus and Greece are an indication of what will happen in other countries should the current system continue - periodic financial crises and bank runs from capital controls on marginal economies resulting in impoverishment of the general populace.<ref>[http://www.marketoracle.co.uk/Article39809.html Greece vs Iceland]</ref><ref>[http://www.zerohedge.com/news/2013-03-22/ecb-set-fair-cypriot-standard-living-capital-controls Capital Controls]</ref> Without debt relief, "following the rules" of debt will mean that the government will have to steal simply to pay back creditors.<ref>[http://www.marketoracle.co.uk/Article39732.html Cyprus Wealth Confiscation Scheme]</ref> Ultimately, with a compliant populace, bankers and governments will periodically, without warning, "steal", "tax" or otherwise confiscate deposits, savings and wealth to keep the financial system alive, whilst continuing to try grow the money supply through fractional reserve banking.<ref>[http://www.zerohedge.com/news/2013-03-22/ecb-set-fair-cypriot-standard-living-capital-controls Capital Controls]</ref>
Without reform or revolution, this perverted Keynesian<ref>[http://mises.org/journals/fm/January2013.pdf Two Sides of the Same Debased Coin], Hunter Lewis</ref> "upside down" combination of "socialism for the rich and capitalism for the poor" will inevitably result in chronic cascading "supply" crises in commodity markets as price signals no longer "work" due to market manipulation and price "smoothing" stifling price rises that must occur for production of essential commodities to remain profitable, thereby ultimately resulting in actual supply and demand mismatches in many essential commodity markets (such as the gold and silver markets).<ref>[http://www.marketoracle.co.uk/Article38893.html Shock Year 2013]</ref><ref>[http://www.zerohedge.com/news/2013-02-09/guest-post-us-economy-now-dangerously-detached-reality US Economy Detached From Reality]</ref> This will ultimately produce a tiny (but massively wealthy) speculative banker class,<ref>[http://www.zerohedge.com/news/2013-04-03/david-stockman-keynesian-endgame The Keynesian Endgame], David Stockman</ref><ref>[http://www.zerohedge.com/news/2013-02-06/guest-post-all-well All Is Well], Jim Quinn</ref> a bloated and ineffective government sector, a private sector that mainly services lucrative government contracts (or is otherwise starved of capital and funding) and the complete destruction of the middle class, resulting in a steadily increasing disenfranchised, desperate, intergenerational underclass.<ref>[http://www.zerohedge.com/news/2013-06-17/rotting-decaying-and-bankrupt-%E2%80%93-if-you-want-see-future-america-just-look-Detroit America's Future is Detroit]</ref><ref>[http://www.zerohedge.com/news/2013-02-06/guest-post-all-well All Is Well], Jim Quinn</ref><ref>[http://www.globalresearch.ca/western-civilization-and-the-economic-crisis-the-impoverishment-of-the-middle-class/18386 Western Civilization and the Economic Crisis]</ref><ref>[http://www.youtube.com/watch?v=DVxyGxEcMqQ Max Keiser on the UK Economy]</ref><ref>[http://mises.org/journals/fm/January2013.pdf Two Sides of the Same Debased Coin], Hunter Lewis</ref><ref>[http://www.youtube.com/watch?v=zbQq33iTsrw Rigged bank rates]</ref><ref>[http://www.zerohedge.com/news/2013-04-03/david-stockman-keynesian-endgame The Keynesian Endgame], David Stockman</ref><ref>[http://www.marketoracle.co.uk/Article39449.html An Orwellian America], Gordon T Long</ref>

David Stockman has the following comments in relation to the current monetary system:<ref>[http://mises.org/daily/6397/The-Keynesian-Endgame The Keynesian Endgame]</ref>

<blockquote>Accordingly, the central banking branch of the state remains hostage to Wall Street speculators who threaten a hissy fit sell-off unless they are juiced again and again. Monetary policy has thus become an engine of reverse Robin Hood redistribution; it flails about implementing quasi-Keynesian demand–pumping theories that punish Main Street savers, workers, and businessmen while creating endless opportunities, as shown below, for speculative gain in the Wall Street casino.

At the same time, Keynesian economists of both parties urged prompt fiscal action, and the elected politicians obligingly piled on with budget-busting tax cuts and spending initiatives. The United States thus became fiscally ungovernable. Washington has been afraid to disturb a purported economic recovery that is not real or sustainable, and therefore has continued to borrow and spend to keep the macroeconomic “prints” inching upward. In the long run this will bury the nation in debt, but in the near term it has been sufficient to keep the stock averages rising and the harvest of speculative winnings flowing to the top 1 percent.

The breakdown of sound money has now finally generated a cruel endgame. The fiscal and central banking branches of the state have endlessly bludgeoned the free market, eviscerating its capacity to generate wealth and growth. This growing economic failure, in turn, generates political demands for state action to stimulate recovery and jobs.

But the machinery of the state has been hijacked by the various Keynesian doctrines of demand stimulus, tax cutting, and money printing. These are all variations of buy now and pay later—a dangerous maneuver when the state has run out of balance sheet runway in both its fiscal and monetary branches. Nevertheless, these futile stimulus actions are demanded and promoted by the crony capitalist lobbies which slipstream on whatever dispensations as can be mustered. At the end of the day, the state labors mightily, yet only produces recovery for the 1 percent.</blockquote>

Paul Krugman has criticized David Stockman's analysis of rising debt levels.<ref>[http://krugman.blogs.nytimes.com/2013/04/03/debt-and-david-stockman/ Debt and David Stockman]</ref> Others have criticized Paul Krugman's analysis.<ref>[http://lewrockwell.com/anderson/anderson362.html Should Government Try to Extend Booms Indefinitely?]</ref> Paul Krugman's argument (essentially) is that debt does not matter because we (mostly) owe it to ourselves, but he never advocates repudiation or cancellation of the debt on the same basis.

==Status under current systems==
Whatever their political leanings, nearly all [[monetary reform]]ers agree that the current financial and economic system imposed on the populace by governments worldwide, involving coercive legal tender laws,<ref>[http://lewrockwell.com/paul/paul766.html Legalize Currency Competition], Ron Paul</ref> the perpetuation of government-protected private banks (organizations legally permitted to engage in unlimited and inherently speculative fractional-reserve banking activities during boom times, with recourse to monopoly central banks - and in some cases corrupt governments<ref>[http://www.prudentbear.com/index.php/thebearslairview?art_id=10513 The Evils of Crony Capitalism], Martin Hutchinson</ref><ref>[http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100008812/irelands-debt-servitude/ Ireland's Debt Servitude], Ambrose Evans-Pritchard, UK Telegraph</ref> - to provide bail outs of fiat money during downturns), "deregulated" labor markets (which have the effect of increasing the marketization and commodification of human activity), strictly enforced bankruptcy laws (which permit the periodic transfer of assets from failed bankrupt investors caught at the end of "Ponzi-scheme" cycles to the private banks and their associates) and personal income tax (which, combined with periodic economic collapses, dispossesses the majority of the populace from their accumulated income and wealth and transfers this wealth to the owners of illicit government bonds) amounts to an inherently unstable, unjust and dysfunctional financial system resulting in environmentally damaging over-consumption and massive worldwide [[malinvestment]]s,<ref>[http://www.mises.org/daily/6578/Central-Banks-The-True-Centers-of-Political-Power Central Banks]</ref> the systematic and irredeemable destruction of fertile arable land,<ref>[http://www.huffingtonpost.co.uk/2011/09/27/natural-resources-being-e_n_982576.html Natural Resources Being Exhausted]</ref> and the government-sponsored (and ultimately unsustainable) oppression of the indebted, impoverished and economically enslaved majority.<ref>[http://www.zerohedge.com/news/2013-02-06/guest-post-all-well All Is Well], Jim Quinn</ref><ref>[http://www.thenewamerican.com/economy/economics/item/14238-obama%E2%80%99s-trillion-dollar-coin-exposes-federal-reserve-scam Obama’s Trillion-Dollar Coin Exposes Federal Reserve Scam], Alex Newman, ''New American''</ref><ref>[http://mises.org/daily/4893 ''The Ethics of Money Production''], Jorg Guido Hulsmann</ref><ref>[http://www.youtube.com/watch?v=QIBFvikcl7g Stacy Herbert and Max Keiser: Flaming Banks] Max Keiser Quote: "Well, ''it's slavery''. You know, they had slavery, then they outlawed slavery but in its place were the Jim Crow laws: 'Coloreds Only. Whites Only.' Then the banks got involved and they have ''financial'' Jim Crow laws. If you're black and living in the ghetto, you are charged 40, 50, 60% to borrow money. If you're white and you work on Wall Street, you're charged ''negative'' 5% to borrow money. That's a ''financial'' Jim Crow law that goes down color lines. Now the big corporations who realize America's becoming a new ''plantation of slaves'' - they're saying, 'Forget it! We don't even make a pretense that there's a "middle class". Here's a product for those living on the plantation. And here's the product for the man livin' in the Big House!'"</ref><ref>[http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/3/25_Sinclair_-_Cyprus%2C_Gold%2C_Russia_%26_A_New_Monetary_System.html Jim Sinclair Interview]. Quote: "He [Paul Craig Roberts] spoke about the banks moving to enslave humanity, and he said the Cypriots had to do whatever it took to put a stop to this."</ref><ref>[http://www.marketoracle.co.uk/Article40103.html Americans Loving Their Servitude], James Quinn</ref>

==See also==
* [[Austrian Business Cycle Theory]]
* [[Central bank]]
* [[Monetary reform]]
* [[Murray Rothbard]]
* [[Ron Paul]]

==Notes==
{{reflist|4}}

==Links==
* [http://www.thefreemanonline.org/features/taking-money-back-part-i/ Taking Money Back: Part I] by [[Murray Rothbard|Murray N. Rothbard]], September 1995
* [http://www.thefreemanonline.org/features/fractional-reserve-banking-part-ii/ Fractional Reserve Banking: Part II] by Murray N. Rothbard, October 1995 (reprinted at [[LRC]] [http://www.lewrockwell.com/rothbard/rothbard239.html here])

*[http://econpapers.repec.org/paper/wpawuwpma/0203005.htm Fractional Reserve Banking as Economic Parasitism]
*[http://www.prosperityuk.com/prosperity/links/links.html Monetary Reform websites]
*[http://www.relfe.com/plus_5_.html I want the Earth Plus 5%]
*[http://www.youtube.com/watch?v=JUFxsZF5E48&list=LLG5bLlG3NQ8sHur0Oco-CmQ&feature=mh_lolz How Our Monetary System Works and Fails]
*[http://www.youtube.com/watch?v=jqvKjsIxT_8 Money As Debt (videoplay animation)]
*[http://www.youtube.com/watch?v=swkq2E8mswI&feature=like-suggest&list=UL The Secret of Oz (documentary video)]
*[http://dailyreckoning.com/ Daily Reckoning]
*[http://jsmineset.com/ Jim Sinclair's MineSet]
*[http://www.lewrockwell.com/ LewRockwell.com]
*[http://www.marketoracle.co.uk/ Market Oracle]
*[http://maxkeiser.com/ Max Keiser]
*[http://globaleconomicanalysis.blogspot.com/ MISH]
*[http://www.prudentbear.com/ PrudentBear.com]
*[http://www.youtube.com/watch?v=Bx5Sc3vWefE 12 Year Old Victoria Grant's Speech]
*[http://www.webofdebt.com/ Web of Debt]
*[http://www.zerohedge.com/ Zero Hedge]

{{DEFAULTSORT:Criticism Of Fractional-Reserve Banking}}
[[Category:Argumentation]]
[[Category:Money]]

Criticism of fractional reserve banking

2014-02-02T10:13:09Z

Karmaisking: /* Inherent problems with the system */

{{main|Fractional-reserve banking}}
'''Criticisms of [[fractional reserve banking]]''' and [[central bank|central banking]] have been put forward from a variety of perspectives, although the most vigorous and sustained criticism now comes from libertarians and anarcho-capitalists such as economists [[Jesús Huerta de Soto]] and [[Jörg Guido Hülsmann]], American politician [[Ron Paul]], and commentators such as historian Thomas Woods, Jim Grant of ''Grant's Interest Rate Observer'' and former US Budget Director David Stockman.<ref>[http://www.philippbagus.com/archivos/Working%20paper%20deposits%20loans%20and%20banking%20bagus%20howden%20block.pdf Deposits, Loans and Banking: Clarifying the Debate], Philipp Bagus, David Howden and Walter Block</ref><ref>[http://blog.mises.org/16521/fantastic-speech-by-de-soto/ Jesús Huerta de Soto Speech]</ref><ref>[http://mises.org/daily/5174/Life-with-the-Fed-Sunshine-and-Lollipops Life with the Fed], Thomas Woods</ref><ref>[http://mises.org/daily/5146/Over-to-You-H-Parker-Willis Over to you H Parker Willis], Jim Grant</ref><ref>[http://www.youtube.com/watch?v=1VcN_Z6L0jM&feature=player_embedded#at=609 James Grant Interview with James Turk]</ref><ref>[http://mises.org/daily/5113/The-End-of-Sound-Money-and-the-Triumph-of-Crony-Capitalism The End of Sound Money and the Triumph of Crony Capitalism], David Stockman, Henry Hazlitt Memorial Lecture, Austrian Scholar's Conference</ref><ref>[http://www.lewrockwell.com/orig11/stockman6.1.1.html Crony Capitalism Strikes Again], David Stockman</ref><ref>[http://www.lewrockwell.com/orig11/stockman6.1.1.html David Stockman Interview - Blame the Fed]</ref><ref>[http://www.zerohedge.com/news/2013-04-03/david-stockman-keynesian-endgame The Keynesian Endgame], David Stockman</ref><ref>[http://www.lewrockwell.com/2013/10/david-stockman/its-sundown-in-america/ Sundown in America], David Stockman</ref><ref>[http://www.lewrockwell.com/rockwell/imperative-sound-money.html The Social Imperative of Sound Money], Lew Rockwell</ref><ref>[http://lewrockwell.com/stockman/stockman16.1.html The Forgotten Cause of Sound Money]</ref><ref>[http://mises.org/daily/6397/The-Keynesian-Endgame The Keynesian Endgame]</ref> Most in the mainstream (both on the left and right) remain silent on the issue of fractional reserve banking and central banking,<ref>[http://www.lewrockwell.com/lewrockwell-show/2008/10/31/58-americas-slow-motion-fascist-coup/ Naomi Wolf Interview with Lew Rockwell], Lew Rockwell: "I've frankly never understood why people on the Left are ''not'' upset about the Federal Reserve. If you look back to the history..." Wolf: "We probably don't understand it!" Lew Rockwell:"...but you know the founding of the Fed before the law was, you know, with bipartisan support signed in 1913, the Federal Reserve Act was drafted at J.P. Morgan's private club - it's sounds like a conspiracy story, but I guess it sort of is - on Jekyll Island Georgia...Big bankers wrote the Federal Reserve Act for their benefit!"</ref><ref>[http://www.lewrockwell.com/rockwell/imperative-sound-money.html The Social Imperative of Sound Money], Lew Rockwell: "I find it sickening that there are so few voices outside the Austrian School that will stand up to this policy [of fiat money, fractional reserve banking and central banking]."</ref> although past critics have included mainstream economists such as Irving Fisher,<ref>''100% Money'', Irving Fisher</ref><ref>[http://en.wikipedia.org/wiki/A_Program_for_Monetary_Reform ''A Program for Monetary Reform'']</ref> and [[Milton Friedman]].<ref>Friedman, M., A Program for Monetary Stability, New York, Fordham University Press, 1960, pp. 65</ref><ref>[http://mises.org/daily/3108 The Social Imperative of Sound Money], Lew Rockwell: "I find it sickening that there are so few voices outside the [[Austrian School]] that will stand up to this policy (of [[fiat money]]/[[fractional reserve banking]]/[[central bank]]ing)".</ref> Within the economics profession, most criticisms are from the [[Austrian School]].<ref>[http://mises.ca/posts/blog/illogic-in-fractional-reserve-banking/ Illogic in Fractional Reserve Banking], James E. Miller</ref><ref>[http://mises.org/media/4014 The Economics of Legal Tender Laws], [[Jorg Guido Hulsmann]] (includes detailed commentary on [[fractional reserve banking|FRB]])</ref><ref>[http://mises.org/store/Money-Bank-Credit-and-Economic-Cycles-P290C0.aspx Money, Bank Credit and Economic Cycles], Jesus Huerta de Soto, Mises Institute ISBN: 978-1-933550-39-8</ref><ref>[http://mises.org/store/Meltdown-P557.aspx ''Meltdown''], Tom Woods, Regnery Press ISBN: 9781596985872</ref><ref>[http://www.marketoracle.co.uk/Article25212.html The Faults of FRB], Thorsten Polleit</ref> There are also critics from outside the economics profession who advocate [[monetary reform]].<ref>[http://www.nakedcapitalism.com/2010/12/matt-stoller-end-this-fed.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capitalism%29 End This Fed], Matt Stoller</ref><ref>For an example of the writings of these groups, see [http://www.bilderberg.org/monref.htm this] contribution from Bilderberg.org</ref><ref>[http://www.youtube.com/watch?v=VMngK0t5WkY Max Keiser]</ref><ref>[http://www.marketoracle.co.uk/Article28533.html The Global Debt Crisis], Ellen Hodgson Brown</ref><ref>[http://www.mises.org/daily/6358/The-Backroom-World-of-Central-Banking Lords of Finance]</ref>

==Terminology==

Critics of fractional reserve banking and the related fiat paper monetary system may refer to it by the term '''debt-based monetary system''',<ref>[http://www.thenewamerican.com/economy/economics/item/14238-obama%E2%80%99s-trillion-dollar-coin-exposes-federal-reserve-scam Obama’s Trillion-Dollar Coin Exposes Federal Reserve Scam], Alex Newman, ''New American''</ref><ref>[http://mises.org/daily/4631 Is Our Money Based On Debt?], Robert Murphy</ref><ref name="speech">For an example of the public use of the term, see the [http://www.prosperityuk.com/prosperity/articles/earl.html speech] of the Earl of Caithness in the House of Lords on 5 March 1997</ref> or '''credit-based monetary system'''.<ref>For example of the public use of the term, see this speech given by [[Zhou Xiaochuan]], [http://www.bis.org/review/r090402c.pdf Reform the monetary system], 23 March 2009 (BIS), and this article, [http://www.nakedcapitalism.com/2009/02/steve-keen-roving-cavaliers-of-credit.html ''Roving Cavaliers of Credit''] by Steve Keen (with commentary by Yves Smith)</ref><ref>[http://globaleconomicanalysis.blogspot.com/2010/09/myths-about-whats-economically.html Myths], MISH</ref><ref>[http://globaleconomicanalysis.blogspot.com/2010/07/are-we-trending-towards-deflation-or-in.html Deflation], MISH</ref><ref>[http://globaleconomicanalysis.blogspot.com/2008/04/deflation-in-fiat-regime.html Deflation In A Fiat Regime?], MISH</ref> They may also refer to money created in parallel with debt as '''debt money''' or '''endogenous money''', reflecting the fact that virtually all new money is currently created by people or businesses or governments further indebting themselves to banks.<ref name="death"/><ref>[http://www.debunkingeconomics.com/Papers/Money/KeenModellingEndogenousMoneyICAPE.pdf Endogenous Money], Steve Keen</ref> This monetary system is called "endogenous" because the money supply is flexible, expanding in parallel with the demand for debt and stalling or contracting when demand for debt declines.<ref>[http://www.debunkingeconomics.com/Papers/Money/KeenModellingEndogenousMoneyICAPE.pdf Endogenous Money], Steve Keen</ref> Some consider this a perverse and dysfunctional way of introducing new money into the economy.<ref name="death"/>

The term, "debt-based monetary system," and related terms such as "debt money" are not used by conventional economists. Mainstream economists often refer to "debt money" by its antonym "credit" and distinguish between types of money only ''after'' the money is created. The very definition of "money" and the distinction between "debt" and "money" (and their respective economic effects) are still sources of vigorous ongoing debate.<ref>[http://www.youtube.com/watch?v=s8HnN8Htr1M David Graeber's Interview with Max Keiser]</ref><ref>[http://lewrockwell.com/wile/wile25.1.html Daily Bell Interview: Dr. Joseph Salerno]</ref><ref>[http://mises.org/daily/5052/Deflation-Confusion-Money-Is-Not-Credit Money Is Not Credit], Robert Blumen</ref><ref>[http://globaleconomicanalysis.blogspot.com/2009/02/fiat-world-mathematical-model.html Fiat World], MISH</ref><ref>[http://globaleconomicanalysis.blogspot.com/2010/09/myths-about-whats-economically.html What's Economically Important], MISH</ref> Mainstream economists rarely if ever discuss the origins of modern money and generally do not actively discuss or comment on the fact that virtually all money is now created through individuals, or businesses, or governments going into debt to government-sponsored commercial banks.<ref>[http://mises.org/daily/3108 The Social Imperative of Sound Money], Lew Rockwell</ref><ref>For an example of the mainstream use of the term "credit" instead of "debt-money" see [http://www.ft.com/cms/s/bdfa429e-17a2-11dd-b98a-0000779fd2ac,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2Fbdfa429e-17a2-11dd-b98a-0000779fd2ac.html&_i_referer=http%3A%2F%2Fwww.ft.com%2Fhome%2Fasia this] example from the Financial Times, 1 May 2008</ref> Discussion around the nature of "debt-based" money and the arguments over its effects on the economy are notably absent from most established mainstream academic economic publications<ref>Paul Krugman, writing at [http://www.slate.com/id/9593 Slate.com], stated that the Austrian theory of business cycles was "about as worthy of serious study as the phlogiston theory of fire".</ref> and most mainstream economists instead argue that the origin of different kinds of money (and the volume of their issuance) does not really matter, at least in the long run.<ref>[http://www.lewrockwell.com/wenzel/wenzel87.1.html Senior Fed Economist Calls Ron Paul a Pinhead]</ref> This mainstream idea is referred to as the theory of "money neutrality".<ref>[http://www.lewrockwell.com/wenzel/wenzel87.1.html Senior Fed Economist Calls Ron Paul a Pinhead]</ref><ref>[http://mises.org/daily/5172/Is-Inflation-Harmless-or-Even-Good Is Inflation Harmless or Even Good?], Robert Murphy</ref><ref>[http://libertarianpapers.org/articles/2011/lp-3-14.pdf Free Banking and the Structure of Production], Dan Mahoney</ref> Some commentators have speculated that the unusual "silence" around the topics of fractional reserve banking and central banking and the staunch refusal to consider alternative theories of money can be attributed to the simple fact that many economists are on the payroll of the major commerical or central banks of the world and are beholden to those banks for their livelihood.<ref>[http://www.safehaven.com/article/15068/economists-opposing-fed-audit-are-on-fed-payroll Economists on Fed Payroll], MISH</ref><ref>[http://www.huffingtonpost.com/2009/09/07/priceless-how-the-federal_n_278805.html Priceless], Ryan Grim, Huffington Post</ref><ref>[http://www.marketoracle.co.uk/Article26581.html Ten Reasons The Banksters Got Away With It], Danny Schechter</ref><ref>[http://www.youtube.com/watch?v=FxtCn2GyqKc&feature=related Corruption in Academic Economics], Charles Ferguson</ref><ref>[http://www.marketoracle.co.uk/Article27805.html Currency Dead End Paradox], Jim Willie CB</ref> Those economists who "dare" to speak about such topics are simply not employed by the banks, by government-sponsored universities or by international financial institutions and are not published in mainstream economic publications and, therefore, their views are not widely disseminated to the general public who are generally taught by government-sponsored teachers and receive their news from the mainstream media.<ref>[http://www.huffingtonpost.com/2009/09/07/priceless-how-the-federal_n_278805.html Priceless], Ryan Grim, Huffington Post</ref><ref>[http://www.marketoracle.co.uk/Article26581.html Ten Reasons The Banksters Got Away With It], Danny Schechter</ref><ref>[http://www.youtube.com/watch?v=FxtCn2GyqKc&feature=related Corruption in Academic Economics], Charles Ferguson</ref><ref>[http://www.wsws.org/en/articles/2013/01/29/keen-j29.html UWS victimises Professor Steve Keen]</ref><ref>[http://www.zerohedge.com/news/2013-05-02/guest-post-nicholas-taleb-against-establishment-economists Establishment Economists]</ref>

== Typical criticisms ==

Founder of the so-called "New Austrian School", Professor Antal E. Fekete, has stated the following in relation to the current monetary system:<ref>[http://www.professorfekete.com/articles/AEFTheSilverSaga.pdf The Silver Saga]</ref>

{{quote|The world economy, sagging as it is under the weight of its debt tower and fast depreciating irredeemable currencies, is clearly on its way to self-destruction. The forcible elimination of, first, silver and then a hundred years later of gold, from the monetary system removed the only ultimate extinguishers of debt we have. In consequence, total debt can only grow, never contract. The process is hidden since the unpaid and unpayable debt is accumulating as sovereign debt of governments. The world is deluding itself that sovereign debt can increase indefinitely as governments can extend its maturity indefinitely. In 2008 we had the wake-up call that it cannot. Unless we stop the proliferation of debt, the world is facing prolonged deflation, depression, continuing capital destruction, bankruptcies and unprecedented unemployment. It is leading to a breakdown of law and order. It could spell the end of our civilization.}}

In August 2004, four years ''before'' the Global Financial Crisis of September 2008 and the ongoing financial crises in Europe and elsewhere, Austrian commentator Robert K. Landis stated the following:<ref>[http://www.goldensextant.com/SavingtheSystem.html Saving the System]</ref>

{{quote|No, the die is cast: we shall have the catastrophe. Our fiat monetary system got a reprieve in the 1980's, not a deliverance. All that has happened since, with the fantastic mispricing of credit the Greenspan Fed has engineered, and the massive global malinvestment this has engendered, is that the dimensions of the unraveling have become more dire.

Mises called this one too: "Certainly, the banks would be able to postpone the collapse; but nevertheless, as has been shown, the moment must eventually come when no further extension of the circulation of fiduciary media is possible. Then the catastrophe occurs, and its consequences are the worse and the reaction against the bull tendency of the market the stronger, the longer the period during which the rate of interest on loans has been below the natural rate of interest and the greater the extent to which roundabout processes of production that are not justified by the state of the capital market have been adopted."

With respect to the form the denouement will take, much has been written within the gold community on the subject of whether we face hyperinflation or deflationary depression as the prelude to monetary collapse. Both sides of the debate appear to accept the premise that whatever may transpire will bear a linear relationship to what now exists. The disagreement centers on the direction the line will go. But today's markets are fully linked by derivatives and technology, and they are patrolled by wolf packs of large, leveraged speculators not noted for their patient outlook. So it seems likely that the terminal monetary crisis will unfold on virtually an instantaneous and discontinuous basis, once the fog of statistical deceit and false market cues begins to lift and a clear trend either way becomes evident. We are not likely to enjoy the luxury of observing either a deflation or an inflation unfold in the fullness of time, but rather, just as Mises foretold, a final and total catastrophe of our fiat monetary system.}}

Financial commentator Jim Willie has written the following regarding the current fiat money system:<ref>[http://www.marketoracle.co.uk/Article39362.html Raging Gold Bull]</ref>

{{quote|The West cannot solve its problems, hardly properly described as a financial crisis anymore, under the current framework bound to the fiat paper currencies. The global monetary war is heating up notably. The heavy liquidity has caused unfixable distortions in every conceivable bond market niche. The new and better debt devices have been exposed for their shams. The leading central bankers lost their credibility long ago. The weakness is as broad as it is deep, a reliance upon paper wealth and paper structures and paper contracts, during a time of zero bound interest rates and unfettered hyper monetary inflation to cover the debts. Almost no foreign USTreasury Bond buyers exist anymore. The US has become Weimar Amerika, a fascist enclave.}}

On 5 March 1997, in a speech in the House of Lords in London England, the Earl of Cathiness made the following observations:<ref>[http://prosperityuk.com/2001/06/our-debt-based-money-system-will-break-us/ Our debt-based monetary system will break us], Earl of Cathiness, House of Lords, Wednesday, 5 March, 1997, Hansard, Vol. 578, No. 68, columns 1869-1871</ref><ref>See also the additional House of Lords speeches contained [http://earthlinggb.wordpress.com/2011/04/06/british-house-of-lords-stunning-speeches/ here]</ref>

{{quote|...it is also a good time to stand back, to reassess whether our economy is soundly based. I would contest that it is not, not for the reason to which the noble Lord, Lord Eatwell, alluded, which is that it is the Government’s fault, but our whole monetary system is utterly dishonest, as it is debt-based. “Dishonest” is a strong word, but a system which by its very actions causes the value of money to decrease is dishonest and has within it its own seeds of destruction. We did not vote for it. It grew upon us gradually but markedly since 1971 when the commodity-based system was abandoned.

Let us look at what has happened since then. The money supply in 1971 was just under £31 billion. At the end of the third quarter of last year, it was about £665 billion. In 25 years it has grown by a staggering 2,145 per cent. Where has the money come from? Interestingly, the Government have only minted a further £20 billion in that time. It is the banks, the building societies and our commercial lenders who have created the balance of £614 billion. If this rate of growth is projected over the next 25 years, the money supply in 2022 will be over £14,000 billion.

All that new money bears interest paid either by us as individuals, by companies or by the Government. Today the Government pay over £30 billion annually in interest charges — coincidentally about the same as the total money supply only 25 years ago. Governments since then have abdicated their responsibility for producing new money and controlling the money supply so that now they are marginalised. In 1971 government notes and coins accounted for 14 per cent of the money supply. Now it is only about 3.5 per cent. “So what?”, noble Lords might ask.

The problem is that it is commercial lending that has boosted the money supply, thus increasing debt and, as sure as night follows day, inflation follows growth in money supply of this sort...

Conventional wisdom tells us that in order to create new jobs and boost the economy, interest rates have to be reduced. That has happened. People are encouraged to borrow to invest and spend. That has happened. As the continuing flow of new money finds its way into the economy, inflation will follow and up will go interest charges again to reduce the level of borrowing. In order to pay the increasing levels of interest, borrowers will once more have to reduce expenditure in other areas of economic activity. The cycle will continue, but the next time, as before, we will all start deeper in debt and with a burden harder to carry. Personal debt has already increased by nearly 3,000 per cent since 1971. How much more can we take? I hope, for the sake of our economy, without which we cannot finance what we want to see — a good health service and a good social security system among other things — we will question this conventional wisdom.

We all want our businesses to succeed, but under the existing system the irony is that the better our banks, building societies and lending institutions do, the more debt is created. The noble Lord, Lord Kingsdown, said that there is little that can be done about debt. No, I do not believe that. There is a different way: it is an equity-based system and one in which those businesses can play a responsible role. The next government must grasp the nettle, accept their responsibility for controlling the money supply and change from our debt-based monetary system. My Lords, will they? If they do not, our monetary system will break us and the sorry legacy we are already leaving our children will be a disaster.}}

On 4 November 1999, Lord Sudeley stated in the House of Lords:

{{quote|The only way in particular to stop inflation is to stop banks from creating credit. The supply of money should be removed from banks and should be assumed by governments, who should issue it on a debt-free basis. Such a view is supported by five disparate quarters: the noble Lord, Lord Beswick, in the debate which he introduced to this House in 1985, Disraeli, the Vatican under Pope Pius XI in his Encyclical Quadragesimo Anno in 1931, the Tsars of Russia in the last century, who prevented the setting up of a privately owned central bank, and, above all, Abraham Lincoln, who said that governments should create, issue, and circulate all currency and credits needed to satisfy the spending power of governments and the buying power of consumers.

By adopting those principles, the taxpayer would be saved immense sums of interest. Lincoln’s greenbacks were generally popular, and their existence let the genie out of the bottle with the public becoming accustomed to government-issued, debt-free money. The year after Lincoln’s assassination, Congress set to work at the bidding of the European central banking interests to retire the greenbacks from circulation and to ensure the reinstitution of a privately owned central bank under the usurers’ control.

During the history of the United States, the money power has gone back and forth between Congress and some privately owned central bank. The American people fought off four privately owned central banks before succumbing to a fifth privately owned central bank, at that time essential, owing to the period of weakness during the Civil War.

The founding fathers of the United States knew the evils of a privately owned central bank. They had seen how the Bank of England ran up the British national debt to such an extent that Parliament was forced to place unfair taxes on the American colonies, leading to their loss following, the American Revolution.

I now conclude. Once the fundamental decision is taken to prevent sterling from being debt-based, the Commonwealth could act as the right monetary union to use sterling debt-free as a genuine alternative to the dollar and the euro.}}

Norm Franz states in his ''Money and Wealth in the New Millennium'':<ref>[http://www.amazon.com/Money-Wealth-Millennium-Norm-Franz/dp/0971086303 ''Money and Wealth in the New Millennium''], Norm Franz</ref>

{{quote|Gold is the money of kings, silver is the money of gentlemen, barter is the money of peasants – but debt is the money of slaves.}}

12th century Chinese scholar Hu Zhiyu stated:<ref>Ralph T. Foster, ''Fiat Paper Money, The History and Evolution of Our Currency'', page 19</ref>

{{quote|Paper money, the child, is dependent on precious metals, the mother. [Inconvertible paper notes are therefore] orphans who lost their mother in childbirth.}}

Robert H. Hemphill, credit manager of the Federal Reserve in Atlanta, stated in 1939:<ref>Preface to ''100% Money'', Irving Fisher. Note: This quote has not been traced to the primary source. See for example [http://www.webofdebt.com/excerpts/introduction.php Web of Debt] and [http://www.lewrockwell.com/north/north908.html Gary North's critique of the book and its sources]</ref>

{{quote|If all the bank loans were paid, no one would have a bank deposit and there would not be a dollar of coin or currency in circulation. This is a staggering thought. Someone has to borrow every dollar we have in circulation, cash or credit. If the banks create ample synthetic money we are prosperous; if not, we starve. When one gets a complete grasp of the picture the tragic absurdity of our hopeless position is almost incredible, but there it is. It (the banking problem) is the most important subject intelligent persons can investigate and reflect upon. It is so important that our present civilization may collapse unless it becomes widely understood and the defects remedied very soon.}}

British monetary reformer Michael Rowbotham states the following in his book, ''The Grip of Death'' (the title being derived from the literal origin of the word "mortgage"):<ref name="death">{{cite book |last= Rowbotham |first= Michael |title= The Grip of Death: A Study of Modern Money, Debt Slavery and Destructive Economics | year= 1998 |publisher= Jon Carpenter Publishing |isbn= 9781897766408 }}</ref>

{{quote|It is actually not in the least surprising that nations are chronically in debt, governments have inadequate resources, public services are under-funded and people are beset by mortgages and overdrafts. The reason for all this monetary scarcity and insolvency is that the financial system used by all national economies worldwide is actually founded upon debt. To be direct and precise, modern money is created in parallel with debt. The reason for the failure of economists to question patently invalid monetary data becomes clear - there is a total acceptance by them of the most extraordinary method for supplying money to the modern economy.

The creation and supply of money is now left almost entirely to banks and other lending institutions. Most people imagine that if they borrow from a bank, they are borrowing other people's money. In fact, when banks and building societies make any loan, they create new money. Money loaned by a bank is not a loan of pre-existent money; money loaned by a bank is additional money created. The stream of money generated by people, businesses and governments constantly borrowing from banks and other lending institutions is relied upon to supply the economy as a whole. Thus the supply of money depends upon people going into debt, and the level of debt within an economy is no more than a measure of the amount of money that has been created...

All around us, the gross failure of modern economics screams out to be addressed. The towering indifference of those shining offices scraping the sky above the menacing ghettos of Brooklyn; the speculative channelling of billions of pounds of volatile international finance, which can leave a country prosperous one week and plunged into decline the next; the ludicrous production of cheap goods of poor durability, so that jobs are 'protected', and we can recycle the materials and make the goods all over again; the ridiculous export drives by which every country simultaneously attacks the economies of every other nation, under the pretence that such global free trade improves the general wellbeing; the staggering waste of a throwaway, quick-growth, all-new spiral of constant economic change; the outrageous financial debt which Third World countries have actually paid many times over, but which, due to interest, is now larger than ever before - a debt which forces those impoverished nations to compete to supply goods already in surplus; the cynical manipulation of human emotions into buying fashion-obsessed trivia; the burgeoning transport demands of escalating economic growth and centralisation, with identical goods crisscrossing the globe, regardless of environmental cost; the fact that despite the incredible productive capacity of the modern economy, people are obliged to work harder, with ever greater efficiency, forever forced to adapt and retrain or face a life of indignity and misery as one of the unemployed.

Both those in work and out must watch, as the world they know and understand changes almost in front of their eyes like some nightmarish Kafka-esque novel. This is the era of accelerating economic change. The benefits are highly dubious, and no-one even pretends that the economy is responding to what people actually want. The only justification offered for the changes is that this is 'the age of progress', and 'you can't stop progress', even if you are human and the progress you are discussing is supposed to be about people and the lives they might lead in the future. The world of economics has got mankind by the throat and everyone knows it, and no-one has a clue where we are going or why we are going there.

But is this surprising? If a monetary system is invalid or flawed, then the entire economy is based on the mathematics of error, and must be riddled with the effects. If the financial system upon which our economies are built is defective, and yet monetary considerations dominate our economic decisions, should we be surprised if the results are less than satisfactory?

The major role played by bank credit, which forms over 95% of the money stock in most developed nations, suggests that it cannot but be implicated in these trends. This is further suggested by the way that banking has literally become the focal point of modern economic management, through manipulating interest rates. The stargazers of Whitehall and the Federal Reserve hold their councils, trying to tread the non-existent tightrope between growth and recession by debating quarter percentage-points of interest rates. Alan Greenspan, the Chairman of the Federal Reserve, engagingly describes his task in controlling the American economy through adjusting interest rates as a matter of 'taking the champagne away once the party has started'. Businessmen around the world hold their breath, measuring his every word, wondering what he will decide. There could be no greater indictment of contemporary financial economics than this; that a fluctuating financial digit on a single computer system in a single street in a single country should have the ability to dominate the economies of an entire planet...

The past thirty years are almost unique by comparison with the previous three centuries in the lack of attention that has been directed at debt and the financial system. Throughout the eighteenth century, there were repeated calls for reform. During the nineteenth century, excessive banking was held by many to be directly responsible for the waves of appalling poverty that swept Europe and America during a period of increasing industrialisation and agricultural development. In this century, during the depression of the 1930s, the financial system effectively seized up and brought virtual collapse to the economies of the world in an age which was, perhaps for the first time, obviously wealthy, and in which technology offered people real freedom as well as material prosperity. One observer judged that over 2,000 schemes for monetary reform were put forward at that time - all with a common theme in their outright rejection of the debt-based financial system as it then operated. The same system continues to this day, modified in small details, but unchanged in principle; and the recent financial crisis in Asia shows the potential for collapse still exists.

However the issue of economic volatility through booms, slumps, crises, and collapses has never been the sole point of criticism. It is the long-term trends that a debt-based financial system fosters which are most destructive. The most obvious of these is declining personal solvency. Mortgages support over 60% (£420 billion) of the money stock in the UK and over 70% ($4.2 trillion) in the US. Housing-debt statistics for the UK and the US show that there has been a dramatic decline in true home ownership as mortgages become higher and ever more widespread. There can be little question that relying upon housing debt to supply money to an economy lacks economic and political justification. However, taken in conjunction with the marked rise in commercial debt, mortgages have a knock-on effect. In an economy where the price of goods is elevated by commercial debt and consumer incomes are deeply eroded by mortgage debt, there is a persistent and subtle advantage given to low-quality, mass-produced goods, and growth is fostered in this direction. The persistent decline in product durability and the growth-culture of a rapacious consumer society can be directly traced to the debt-based financial system.

The financial system has also generated a serious distortion of agriculture. Excessive farming debt has driven out the most efficient producers - small/medium sized farms. Meanwhile, the relentless pursuit of farming and processing methods oriented towards a low-price market now involves the production of foodstuffs of poor nutritional value, inferior to that which the land can provide and inferior to that which consumers actually desire.

The nature of growth within a debt economy affects not only the quality of output, but distribution and marketing. Intense competition for sales within a debt-based economy results in the use of transport as a competitive strategy by businesses. This has led to a progressive breakdown of local and regional supply networks, and marketing over ever-greater distances, leading to escalating commercial traffic demands.

At the international level, trade is deeply affected by the debt-based financial system. The aggressive pursuit of maximum export revenues, rather than seeking a simple balance of trade, is entirely due to the fact that even the wealthiest nations operate from a position of gross insolvency. International trade has degenerated into a competition between nations to alleviate their indebtedness, rather than a process involving a mutually beneficial exchange of goods and services.

Endemic Third World debt is also directly attributable to the reliance upon debt and banking to supply money. The theoretical model of borrowing from the World Bank/IMF, investing in development and repaying loans from export revenues, is one of the great failures of contemporary economics. The persistent inability on the part of debtor nations to repay these loans suggests strongly that the nature of the indebtedness suffered by the Third World has absolutely no actual legitimacy or validity...

The more one explores the broad impact of debt, the more apparent it becomes that bank-credit constitutes a dysfunctional form of money. An economy based almost entirely upon bank-credit and debt experiences an intense drive for growth, regardless of need or demand. Bank credit engenders financial dependence, injects instability and fosters growth-distortions, both within an economy and throughout the international arena.

Reform of the debt-based financial system is clearly not a minor issue. It is not a matter of fiddling around with taxes, incomes and allowances to make things apparently more equal, more efficient, or perhaps more straightforward. Changing the debt-based financial system involves gradually altering the very foundations upon which national and international economics is based. Monetary reform is concerned with attempting to determine a new principle for the supply of money to an economy - the purpose being to create a supportive financial environment in which more constructive economic trends are allowed to emerge, and in which more benign systems of overall economic management become possible. In view of the rapacious onslaught on the environment, the waste of natural resources and the social and political friction caused by de-regulated commerce and capital flows, this is at once a promising, but a sobering prospect.}}

Dr Chris Leithner states in his book ''The Evil Princes of Martin Place'':<ref>[http://economics.org.au/2011/04/the-banking-bubble-blow-by-blow/ The Evil Princes of Martin Place]</ref>

{{quote|The inflation that necessarily results from fractional reserve banking is a “tax” by which the early recipients of counterfeit money expropriate late recipients’ wealth. The tax is particularly insidious because it’s so well hidden. Few people — apparently including banksters and mainstream economists! — understand it (or, if they understand it, certainly don’t draw attention to it); and still less do they discuss its ethical and distributional implications. Obviously, it’s in insiders’ interest to distract outsiders’ attention from the source of the counterfeiting. It’s also in their interest to reverse the order of causality with respect to the cause and consequences of inflation, and thereby further to bamboozle the public. Accordingly, governments and mainstream economists don’t attribute the consequence (rising prices) to its single cause (inflation); instead, they brazenly and diametrically incorrectly insist that rising prices cause inflation! (p. 143)...

Gosplan, the Soviet Union’s central planning agency, set targets for the production of steel, cement and myriad other goods and services; Western central banks set targets for the Overnight Cash Rate and the Consumer Price Index. The chaotic consequences of central plans, Soviet and Western, necessarily reverberate throughout the economy … It’s quite comical: people who claim they “believe in the free market” blindly and unthinkingly affirm central banking and its relentless interventions into the market. Elementary logic completely escapes them: if you reject central planning in general, then you must also reject specific aspects like the central planning of money. If you abhor attempted price-fixing, then you must abhor the attempt to fix the Overnight Cash Rate. (pp. 254-55)...

[I]t is highly improbable that the combination of a pure gold standard and a 100% reserve for deposits has ever resulted in a prolonged rise of prices. The historical record is telling: in no year from 1492 to the present has the total supply of gold increased by more than 5%. (p. 552)}}

Ron Paul stated in his book ''End the Fed'':<ref name="Paul_End">Ron Paul. [http://mises.org/daily/3687 ''End the Fed''], ''Mises Institute'', September 03, 2009. Chapter 2 of the book ''End the Fed''. Referenced 2011-03-16.</ref>

{{quote|American presidents actually worked to implement and defend the gold standard, which put a brake on the ability of the largest banks to expand credit without limit. The gold standard worked like a regulator in this way. Ultimately, banks had to function like every other business. They could expand and make risky loans up to a point, but when faced with bankruptcy, they had nowhere they could turn. They would have to contract loans and deal with extreme financial pressures. Risk bearing is a wonderful mechanism for regulating human decision making. This created a culture of lending discipline.

In the jargon of the day, the system lacked "elasticity." That's another way of saying that banks couldn't expand money and credit as much as they wanted. They couldn't inflate without limit and count on a centralized institution to bail them out...

The banking industry has always had trouble with the idea of a free market that provides opportunities for both profits and losses. The first part, the industry likes. The second part is another issue. That is the reason for the constant drive in American history towards the centralization of money and banking, a trend that not only benefits the largest banks with the most to lose from a sound money system, but also the government, which is able to use an elastic system as an alternative form of revenue support. The coalition of government and big bankers provides the essential backbone of support for the centralization of money and credit...

Consider the Soviet case: to my knowledge, no business ever went under with the Soviet system but society in general grew ever poorer. Think of that Soviet system applied to the banking industry and you have the Fed.}}

He also wrote the following in March 2013:<ref>[http://lewrockwell.com/paul/paul854.html The Great Cyprus Bank Robbery]</ref>

<blockquote>Remember that under a fractional reserve banking system only a small percentage of deposits is kept on hand for dispersal to depositors. The rest of the money is loaned out. Not only are many of the loans made by these banks going bad, but the reserve requirement in Euro-system countries is only one percent! If just one euro out of every hundred is withdrawn from banks, the bank reserves would be completely exhausted and the whole system would collapse. Is it any wonder, then, that the EU fears a major bank run and has shipped billions of euros to Cyprus?

The elites in the EU and IMF failed to learn their lesson from the popular backlash to these tax proposals, and have openly talked about using Cyprus as a template for future bank bailouts. This raises the prospect of raids on bank accounts, pension funds, and any investments the government can get its hands on. In other words, no one's money is safe in any financial institution in Europe. Bank runs are now a certainty in future crises, as the people realize that they do not really own the money in their accounts. How long before bureaucrat and banker try that here?

Unfortunately, all of this is the predictable result of a fiat paper money system combined with fractional reserve banking. When governments and banks collude to monopolize the monetary system so that they can create money out of thin air, the result is a business cycle that wreaks havoc on the economy. Pyramiding more and more loans on top of a tiny base of money will create an economic house of cards just waiting to collapse. The situation in Cyprus should be both a lesson and a warning to the United States. We need to end the Federal Reserve, stay away from propping up the euro, and return to a sound monetary system.</blockquote>

In the foreward to ''Fiat Money Inflation in France'', Mr John McKay wrote the following:<ref>[http://mises.org/books/inflationinfrance.pdf ''Fiat Money Inflation in France''], Andrew Dickson White, 1912</ref>

{{quote|The story of "Fiat Money Inflation in France" is one of great interest to legislators, to economic students, and to all business and thinking men. It records the most gigantic attempt ever made in the history of the world by a government to create an inconvertible paper currency, and to maintain its circulation at various levels of value. It also records what is perhaps the greatest of all governmental efforts—with the possible exception of Diocletian's—to enact and enforce a legal limit of commodity prices. Every fetter that could hinder the will or thwart the wisdom of democracy had been shattered, and in consequence every device and expedient that untrammelled power and unrepressed optimism could conceive were brought to bear.

But the attempts failed. They left behind them a legacy of moral and material desolation and woe, from which one of the most intellectual and spirited races of Europe has suffered for a century and a quarter, and will continue to suffer until the end of time. There are limitations to the powers of governments and of peoples that inhere in the constitution of things, and that neither despotisms nor democracies can overcome.

Legislatures are as powerless to abrogate moral and economic laws as they are to abrogate physical laws. They cannot convert wrong into right nor divorce effect from cause, either by parliamentary majorities, or by unity of supporting public opinion. The penalties of such legislative folly will always be exacted by inexorable time. While these propositions may be regarded as mere commonplaces, and while they are acknowledged in a general way, they are in effect denied by many of the legislative experiments and the tendencies of public opinion of the present day. The story, therefore, of the colossal folly of France in the closing part of the eighteenth century and its terrible fruits, is full of instruction for all men who think upon the problems of our own time.}}

C.J. Maloney wrote of the desperation of Henry VIII of England to counterfeit gold by engaging charlatan-alchemists:<ref>[http://www.lewrockwell.com/maloney/maloney28.1.html The Desperation of King Henry VIII], C.J. Maloney</ref>

{{quote|Despite his formidable education and great historic reputation, the disastrous interventions into the economy, the lifelong dishonesty with the currency in his care and, most of all, his laughable attempts to bring a sorcerer into his court to conjure gold, mark the great King Henry VIII as a fool. Yet there is no reason, be warned, for anyone to feel superior to the King; one only needs to pick up a newspaper to see that though alchemy may be a dead science, it has merely taken up new forms.

This has always been and always will be, for its immortality is powered by economic man’s most dangerous, fondest wish, the one that will drive us to endless imbecilities and repeated destruction – the ardent desire to believe that you can get something for nothing. His adherence to that belief made King Henry VIII a man of his times – and ours.}}

In his treatise, ''The Ethics of Money Production'', which was published by the Mises Institute in October 2008, Jörg Guido Hülsmann presents (at pages 238-239) the following description of the perverse rise of fiat money and fractional reserve banking:

{{quote|There is no tenable economic, legal, moral, or spiritual rationale that could be adduced in justification of paper money and fractional-reserve banking. The prevailing ways of money production, relying as they do on a panoply of legal privileges, are alien elements in the capitalist [i.e., true free market] economy. They provide illicit incomes, encourage irresponsibility and dependence, stimulate the artificial centralization of political and economic decision-making, and constantly create fundamental disequilibria that threaten the life and welfare of millions of people. In short, paper money and fractional-reserve banking go a long way toward accounting for the excesses for which the capitalist economy is widely chided.

We have argued that these monetary institutions have not come into existence out of any economic necessity. They have been created because they allow an alliance of politicians and bankers to enrich themselves at the expense of all other strata of society. This alliance emerged rather spontaneously in the seventeenth century; it developed in multifarious ways up to the present day, and in the course of its development it created the current monetary institutions.

…The driving force that propelled the development of central banks and paper money was the reckless determination of governments, both aristocratic and democratic, to increase their revenue, if necessary in violation of good faith and of all established rules of commerce.}}

The father of the Deutsche Mark, Wilhelm Röpke (1899-1966) stated:<ref>[http://www.professorfekete.com/articles/AEFAmericanBasesGermanyGoldBasis.pdf The Gold Basis], Antal E Fekete</ref>

{{quote|It is not the gold standard that failed, but those in whose care it was entrusted.}}

Many [[monetary reform]]ers claim that a fiat money/fractional-reserve based banking system is inherently destructive and inevitably generates [[inflation|debasement of the currency]], extreme inequality, the destruction of the middle class<ref name="Paul_End" /> and [[Austrian Business Cycle Theory|wrenching business crises]].<ref>[http://www.marketoracle.co.uk/Article25212.html The Faults of FRB], Thorsten Polleit</ref><ref name="Paul_End" /><ref>[http://mises.org/store/Money-Bank-Credit-and-Economic-Cycles-P290C0.aspx Money, Bank Credit and Economic Cycles], Jesus Huerta de Soto, Mises Institute ISBN: 978-1-933550-39-8</ref><ref>[http://www.mises.org/Books/mysteryofbanking.pdf Murray Rothbard, ''The Mystery of Banking'']</ref><ref name="books.google.com">{{cite book |last= Brown |first= Ellen H. |title= Web of Debt |url= http://books.google.com/books?id=ILMGrEC524UC |accessdate= 2007-12-15 |year= 2007 |publisher= Engdahl Publishing|isbn= 0979560802 }}</ref><ref name="death"/><ref name="monetary.org">[http://www.monetary.org/lostscienceofmoney.html Stephen A. Zarlenga, ''The Lost Science of Money'' AMI (2002)]</ref><ref>[http://mises.org/story/3108 Sound Money], Lew Rockwell</ref><ref>[http://mises.org/story/1971 Our Money Madness], Lew Rockwell</ref><ref>[http://mises.org/rothbard/genuine.asp The Case for a Gold Dollar], Murray Rothbard</ref><ref name="twilight"/> Vladimir Z. Nuri has analyzed fractional reserve banking and considers it a form of economic parasitism.<ref>[http://econpapers.repec.org/paper/wpawuwpma/0203005.htm Fractional Reserve Banking as Economic Parasitism]</ref> Ellen Hodgson Brown has compared fractional reserve banking and the charging of compound interest on created money with cancer.<ref>[http://www.marketoracle.co.uk/Article39053.html Why Bankers Rule the World], Ellen Hodgson Brown</ref>

These views are not accepted by mainstream government-supported economists. For example David Andolfatto, Vice President in the Research Division of the Federal Reserve Bank of St. Louis, has openly called Dr. Ron Paul a "pinhead" for holding such views.<ref>[http://www.lewrockwell.com/wenzel/wenzel87.1.html Senior Fed Economist Calls Ron Paul a Pinhead], LRC</ref> He later tried unsuccessfully to delete or retract his statements and expressed his regret over making the comments.<ref>[http://www.lewrockwell.com/wenzel/wenzel92.1.html Fed Economist in Retreat], Robert Wenzel</ref>

Critics of fractional reserve banking frequently argue that since money creation requires ''loans'' from the banking system, people are required to go further into debt in order for any new money to be created. They theorize that this eventually causes [[Austrian Business Cycle Theory|credit cycle]]s (or [[Austrian Business Cycle Theory|business cycles]]) and debases the [[means of exchange]].<ref>[http://www.marketoracle.co.uk/Article25212.html The Faults of FRB], Thorsten Polleit</ref> They also argue that if debts were ever paid back, there would be no money and the economy would collapse in a debt-deflation trap.<ref>[http://www.youtube.com/watch?v=jqvKjsIxT_8 Money As Debt]</ref> They therefore argue the system is ''inherently unstable'', requiring constantly increasing injections of debt just to avoid deflationary collapse.<ref>[http://www.youtube.com/watch?v=jqvKjsIxT_8 Money As Debt]</ref> They claim this is ultimately unsustainable.<ref>[http://www.youtube.com/watch?v=jqvKjsIxT_8 Money As Debt]</ref><ref>[http://www.youtube.com/watch?v=HZAzBDDnhwg Rich Dad Advisors Discuss Food Storage]</ref>

Many critics find it problematic that banks "create money out of nothing" and consider this fundamentally immoral, akin to [[counterfeiting]]<ref>[http://www.youtube.com/watch?v=QIBFvikcl7g Stacy Herbert and Max Keiser: Flaming Banks] Max Keiser Quote: "Banks counterfeit money. Bernanke, Geithner... anyone in the banking business is just a... just an out of control, rogue, counterfeiting, naked short selling ''weasel''."</ref> and/or [[embezzlement]].<ref>[http://www.dailypaul.com/node/119914 Ron Paul video - fractional reserve banking is fraudulent]</ref><ref name="Paul_End" /><ref>[http://www.marketoracle.co.uk/Article25212.html The Faults of FRB], Thorsten Polleit</ref>

Some also link the alleged negative effects of fractional reserve banking with central banking<ref>[http://www.zerohedge.com/article/guest-post-qe-end-america-we-know-it QE Is The End Of America], ZeroHedge</ref> and a government-enforced "paper" or [[fiat currency]],<ref>[http://www.marketoracle.co.uk/Article27768.html The Federal Reserve Note Is Dead], Jeff Berwick</ref> which they claim allows the practice of fractional reserve banking to continue without a "natural" limitation on the growth of the [[money supply]], thereby causing inherently unsustainable "[[bubble (economics)|bubbles]]" in asset and capital markets, which are vulnerable to Ponzi-like speculation by highly leveraged [[hedge funds]] and other bank agents.<ref name="Paul_End" /><ref>[http://www.debtdeflation.com/blogs/2009/12/23/mish-on-the-fictional-reserve-system/ MISH on the Fictional Reserve System], Steve Keen</ref><ref>[http://mises.org/store/Money-Bank-Credit-and-Economic-Cycles-P290C0.aspx Money, Bank Credit and Economic Cycles], Jesus Huerta de Soto, Mises Institute ISBN: 978-1-933550-39-8</ref><ref name="books.google.com">{{cite book |last= Brown |first= Ellen H. |title= Web of Debt |url= http://books.google.com/books?id=ILMGrEC524UC |accessdate= 2007-12-15 |year= 2007 |publisher= Third Millennium Press |location= Baton Rouge, Louisiana |isbn= 0979560802 }}</ref><ref name="death"/><ref name="monetary.org">[http://www.monetary.org/lostscienceofmoney.html Stephen A. Zarlenga, ''The Lost Science of Money'' AMI (2002)]</ref><ref>[http://mises.org/story/3108 Sound Money], Lew Rockwell</ref><ref>[http://mises.org/story/1971 Our Money Madness], Lew Rockwell</ref><ref>[http://mises.org/rothbard/genuine.asp The Case for a Gold Dollar], Murray Rothbard</ref><ref name="twilight"/><ref>[http://www.marketoracle.co.uk/Article25212.html The Faults of FRB], Thorsten Polleit</ref>

Reformist economists such as [[Murray Rothbard]] support a "full reserve" banking system and criticize [[fractional reserve banking]] as inherently fraudulent.<ref>[http://mises.org/daily/5185/The-Need-for-100-Reserves The Need for 100% Reserves], Frank D. Graham</ref> [[Murray Rothbard]] held this view very strongly throughout his life.<ref name="Paul_End" /><ref>[http://www.marketoracle.co.uk/Article25212.html The Faults of FRB], Thorsten Polleit</ref> Other reformist economists are more tolerant of fractional-reserve banking and support [[free banking]] instead of full reserve banking.<ref>[http://books.google.com/books?id=DFv6OzeBWpQC&pg=PP3&dq=steven+horwitz++banking&sig=VZasp_8pGVvpQsFKMI3W9yp4AlM#PPA231,M1 Microfoundations and Macroeconomics: An Austrian Perspective], Steven Horwitz, pp. 223-232.</ref>

==Basic debate==

The economic, environmental and social effects arising from money creation through fractional-reserve banking have been subject to much heated political debate for well over two centuries.<ref name="The Forgotten War"/><ref name="books.google.com"/><ref name="death"/><ref name="twilight"/><ref>[http://www.silverbearcafe.com/private/fracbank.html Antal E. Fekete, Fractional Reserve Banking Revisited]</ref><ref>[http://news.goldseek.com/GoldSeek/1297199137.php China Inflation and Gold], Darryl Robert Schoon</ref><ref>[http://www.zerohedge.com/article/guest-post-good-bad-and-ugly-part-3 The Good, the Bad and the Ugly], James Quinn</ref><ref>[http://www.marketoracle.co.uk/Article29255.html The Collapse of Paper Money], Darryl Robert Schoon</ref><ref>[http://www.goldismoney2.com/archive/index.php/t-524.html?s=d418ff253326772a09e1a8d992da7753 Venetian Bankers and the Dark Ages]</ref>

Many Austrian economists and monetary reformers focus on the combined use of [[fiat currency]], [[fractional-reserve banking]] and [[central banking]] as a negative feature of modern monetary systems.<ref>[http://www.youtube.com/watch?v=G1l7DY8kdz0 The Fed Unspun]</ref><ref>[http://mises.org/media/4014 The Economics of Legal Tender Laws], [[Jorg Guido Hulsmann]]</ref><ref>[http://mises.org/store/Meltdown-P557.aspx ''Meltdown''], Tom Woods, Regnery Press ISBN: 9781596985872</ref> These commentators use the term "debt-based monetary system" to refer to an economic system where [[money]] is created primarily through fractional-reserve banking techniques, using the banking system.<ref>[http://mises.org/daily/4569 What Does Debt-Based Money Imply for Interest Payments?], Robert Murphy</ref><ref>[http://mises.org/daily/4631 Is Our Money Based On Debt?], Robert Murphy</ref><ref name="speech"/> This form of money is called "debt-based" because as a ''condition of its creation'' someone must go into debt in order for the money to be created and it must be paid back plus interest at some time in the future.

To some commentators, this implies that as the [[money supply]] and the economy grows, the general populace becomes increasingly indebted at the same time due to the fact that debt grows in parallel with money supply growth, and increasing interest payments (from either taxpayers or indebted consumers) are needed to pay bondholders as the money supply grows.<ref>[http://www.marketoracle.co.uk/Article28533.html The Global Debt Crisis], Ellen Hodgson Brown</ref><ref name="death"/><ref name="twilight">[http://www.marketoracle.co.uk/Article4489.html Antal E. Fekete, The Twilight of Irredeemable Debt]</ref><ref name="The Forgotten War">[http://news.goldseek.com/GoldSeek/1192819378.php America's Forgotten War Against the Central Banks], Mike Hewitt</ref>

One argument posits that since debt and the interest on the debt can only be paid in the same form of money, the total debt (principal plus interest) can never be paid in a debt-based monetary system unless more money is created through the same process.<ref>[http://www.marketoracle.co.uk/Article28533.html The Global Debt Crisis], Ellen Hodgson Brown</ref><ref>[http://www.marketoracle.co.uk/Article38581.html The Trillion Dollar Coin: What You Really Need To Know], Rudy Avizuis</ref> For example: if 100 credits are created and loaned into the economy at 10% per year, at the end of the year 110 credits will be needed to pay the loan and extinguish the debt. However, since the additional 10 credits does not yet exist, it too must be borrowed. To some, this implies that the money supply must grow exponentially at the same rate as economic growth and compounding debt in order for the monetary system to remain solvent, as economic activity would be stifled with a static volume of money when interest became due, because in a static-money world no new money could be found to be taken out of circulation to allow debtors to pay outstanding interest to creditors.<ref name="death"/><ref name="twilight"/><ref>[http://globaleconomicanalysis.blogspot.com/2011/01/steve-keen-responds-to-world-economic.html Exponential Credit], MISH,</ref><ref>[http://blog.mises.org/17737/chancellor-not-enough-gold/ Not Enough Gold], Robert Blumen</ref><ref>[http://mises.org/daily/6391/Why-the-Greenbackers-Are-Wrong Why Greenbackers Are Wrong], Thomas Woods</ref>

Others argue that there is in fact no mathematical necessity for the stock of money in a debt-based system to grow, as the "turnover" or "flow" or "velocity" of money can increase to allow for compounding interest payments.<ref>[http://mises.org/daily/4569 What Does Debt-Based Money Imply for Interest Payments?], Robert Murphy</ref><ref>[http://www.debtdeflation.com/blogs/2010/10/08/ami-talks-in-flv-format/ AMI Conference 2010], Steve Keen</ref><ref>[http://www.debtdeflation.com/blogs/2010/11/05/solving-the-paradox-of-monetary-profits-2/ Solving the Paradox of Monetary Profits], Steve Keen</ref><ref>[http://www.zerohedge.com/news/2013-02-11/occams-gold-vs-rube-goldbergs-fiat Occam's Gold]</ref><ref>[http://mises.org/daily/6391/Why-the-Greenbackers-Are-Wrong Why Greenbackers Are Wrong], Thomas Woods</ref> However this does imply that population growth would need to be positive to encourage increased spending rates or some individual consumers would have to increase their rate of spending (and decrease their savings) to expand GDP sufficiently to allow the fixed stock of money to turnover sufficiently to pay for the interest compounding on top of the debt.<ref>[http://globaleconomicanalysis.blogspot.com/2011/01/steve-keen-credit-impulse.html The Credit Impulse], Steve Keen with commentary from MISH</ref><ref>[http://mises.org/daily/4569 What Does Debt-Based Money Imply for Interest Payments?], Robert Murphy</ref><ref>[http://www.debtdeflation.com/blogs/2010/10/08/ami-talks-in-flv-format/ AMI Conference 2010], Steve Keen</ref><ref>[http://www.debtdeflation.com/blogs/2010/11/05/solving-the-paradox-of-monetary-profits-2/ Solving the Paradox of Monetary Profits], Steve Keen</ref> This may mean that Ponzi-like dynamics bubble up in "pockets" of the economy with interest payments being allowed in a fixed money economy, but these debt-fuelled bubbles of higher spending or speculation would pop and die out relatively quickly as there would be no central bank to keep the bubbles alive with further money creation.<ref>[http://mises.org/daily/4569 What Does Debt-Based Money Imply for Interest Payments?], Robert Murphy</ref><ref>[http://globaleconomicanalysis.blogspot.com/2011/01/steve-keen-credit-impulse.html The Credit Impulse], Steve Keen with commentary from MISH</ref><ref>[http://www.zerohedge.com/news/2013-02-11/occams-gold-vs-rube-goldbergs-fiat Occam's Gold]</ref>

Gold, silver and other [[precious metals]] have in the past been used as money.<ref>[http://www.zerohedge.com/news/2013-02-11/occams-gold-vs-rube-goldbergs-fiat Occam's Gold]</ref> Because of the difficulty in increasing the supply of precious metals quickly, some [[monetary reform]]ers believe a return to the [[gold standard]], or a similar system of "hard" or "real" asset-backed currency, is the only way to stabilize the growth of the money supply. These monetary reformers often refer to the gold standard and [[silver standard]] as "sound money" or "honest money".<ref>[http://mises.org/daily/4860 Money: Sound and Unsound], Mark Thornton commentary on Joseph Salerno's book</ref><ref>[http://mises.org/daily/6391/Why-the-Greenbackers-Are-Wrong Why Greenbackers Are Wrong], Thomas Woods</ref>

==Main criticisms==

In a 2003 statement to the U.S. House of Representatives, Ron Paul stated "if unchecked, the economic and political chaos that comes from currency destruction inevitably leads to tyranny".<ref name="house.gov">[http://www.house.gov/paul/congrec/congrec2003/cr090503.htm Paper Ron Paul, Paper Money and Tyranny, Speech in U.S. House of Representative, September 5, 2003]</ref>

Some economic thinkers (primarily members of the [[Austrian School]]) and political commentators believe that a debt-based monetary system amounts to a subtle form of monetary "[[fraud]]" in that it creates money "costlessly" through the use of [[fractional-reserve banking]] techniques.<ref>[http://www.mises.org/rothbard/moneyback.asp Taking Money Back, by Murray Rothbard]</ref>

Michael Rowbotham is an active proponent of [[monetary reform]], and argues that this system of [[money supply]] is perverse and inherently monopolistic and "anti-democratic", as it creates an inflationary exponential growth imperative in the economy which leads to over-centralization and environmentally damaging and unstable over-consumption. Critics such as Rowbotham argue that the indebted are forced to induce new consumers to spend their way into debt so existing loans can be repaid with new debt-created money. Failure to achieve this goal results in [[foreclosure]] for those businesses and [[insolvency]] in the banking system that leads to economic collapse due to the sudden contraction of the money supply.<ref name="death"/><ref name="Ponzi Nation">[http://www.iimagazine.com/article.aspx?articleID=1234345 Ponzi Nation]</ref> This failure is inevitable due to the fact that, eventually, debt-saturated businesses and governments will no longer be able to force individuals into further debt due to the fact that they are already debt-saturated themselves. Once this point is reached, economic collapse is inevitable without wholesale debt repudiation.

Mark Anielski as well as some political thinkers such as Rowbotham and some economists (such as Hyman Minsky, Steve Keen and Mike Shedlock) argue that this system of money supply has characteristics similar to a [[pyramid scheme]], where the newly indebted are compelled to induce others into debt to pay off their own debts.<ref>[http://globaleconomicanalysis.blogspot.com/2011/01/steve-keen-credit-impulse.html The Credit Impulse], Steve Keen with commentary from MISH</ref><ref>[http://www.lin.ca/resource/html/arpa02/PC1-FertileObfuscation.pdf ''Fertile Obfuscation: Making Money Whilst Eroding Living Capital''], 34th Annual Conference of the Canadian Economics Association, Mark Anielski</ref> It is therefore argued by a number of monetary reformers that fractional-reserve banking and the associated exponential growth of money in the economy "forces" the economy towards indebted consumerism.<ref name="books.google.com"/>

Rowbotham argues that a major negative side-effect of the debt-based monetary system is its effect on agriculture, claiming that residential development produces by far the greatest continuous injection of debt money into modern debt-based economies because banks secure loans primarily with developed property and are therefore willing to issue more debt-money against property development than any other asset class. Therefore, significant super-normal profits can be generated by re-zoning agricultural land and replacing it with low-density [[House|housing]].<ref name="death"/>
If this is correct, this trend will lead to the destruction of fertile arable land, as farmers cannot compete to retain fertile arable land from property developers at the periphery of major population centers, and as this land is then progressively re-zoned for speculative new residential development. Rowbotham predicts that the global supply of fertile arable land will systematically and catastrophically decline as perverse monetary incentives inherent in the current debt-based system favor short-term speculative land development over long-term food security, leading to a broad decline in the quality and nutritional value of agricultural produce and, eventually, a dramatic increase in the prices of many "soft" commodities - which could then lead to actual food shortages for poorer segments of the world population.<ref>[http://www.marketoracle.co.uk/Article27874.html Horrific Global Food Crisis is Looming], Michael Snyder</ref><ref>[http://www.lewrockwell.com/blog/lewrw/archives/85588.html Inflation and Bacteria], Michael Rozeff</ref><ref>[http://www.lewrockwell.com/blog/lewrw/archives/76920.html The Corporate State and the Tapeworm Economy], Catherine Austin Fitts</ref><ref name="death"/><ref>[http://www.wsws.org/articles/2007/dec2007/food-d22.shtml Naomi Spencer, World Socialist Website, "Severe food shortages, price spikes threaten world population", 22 December 2007]</ref><ref>[http://www.preparednesspro.com/blog/food-shortage-series-part-1/ Food Shortage Series],Kellene Bishop</ref> This has been referred to as the problem of "Peak Everything".<ref>[http://globaleconomicanalysis.blogspot.com/2011/03/oil-prices-are-double-edged-sword-peak.html Peak Everything?], MISH</ref><ref>[http://www.marketoracle.co.uk/Article28218.html "Peak Everything"], Jeremy Grantham</ref>

If for any reason the monetary system broke down, urban populations (nominally "rich" but poor in terms of direct access to food supply) could find basic foodstuffs either rationed or contaminated with lower quality products - or even unavailable at any price, ultimately resulting in food security becoming a major public policy issue - particularly if combined with oil supply shortages or an oil price spike,<ref>[http://www.marketoracle.co.uk/Article27874.html Horrific Global Food Crisis is Looming], Michael Snyder</ref><ref>[http://jsmineset.com/2011/02/24/in-the-news-today-791/ Collapse]</ref> as major population centers worldwide are almost entirely reliant on mass transportation of food from distant (or even foreign) locations to survive day-to-day.<ref>[http://www.marketoracle.co.uk/Article27874.html Horrific Global Food Crisis is Looming], Michael Snyder</ref><ref name="death"/><ref>[http://www.preparednesspro.com/blog/food-shortage-series-part-1/ Food Shortage Series],Kellene Bishop</ref><ref>[http://www.wsws.org/articles/2007/dec2007/food-d22.shtml Severe food shortages, price spikes threaten world population]</ref><ref>[http://www.nytimes.com/2010/12/18/business/global/18yuan.html?hpw Inflation in China]</ref><ref>[http://www.lewrockwell.com/blog/lewrw/archives/76920.html The Corporate State and the Tapeworm Economy], Catherine Austin Fitts</ref><ref>[http://jsmineset.com/2011/02/24/in-the-news-today-791/ Collapse]</ref><ref>[http://www.rickackerman.com/2011/04/bee-die-off-threatens-global-food-calamity/ Bee Die Off]</ref><ref>[http://globaleconomicanalysis.blogspot.com/2011/03/oil-prices-are-double-edged-sword-peak.html Peak Everything?], MISH</ref><ref>[http://lewrockwell.com/bonner/bonner602.html We're all going to die]</ref> In addition, fresh water (an essential commodity that is subsidised in its production by state-controlled entities in virtually every country around the world) appears to be rapidly diminishing through pollution and over-use, further threatening the global food supply in coming decades, resulting in what some commentators are describing as a global water crisis of "horrific" proportions.<ref>[http://lewrockwell.com/rep2/water-crisis-coming.html 25 Signs That a Horrific Global Water Crisis Is Coming], Economic Collapse Blog</ref><ref>[http://www.zerohedge.com/news/2013-03-06/guest-post-30-facts-coming-water-crisis-will-change-everything 30 Facts]</ref> Yemeni is at the cutting edge of these issues, having a simultaneous and inter-related water and drug crisis caused by economic stagnation, unemployment and social inequality.<ref>[http://www.youtube.com/watch?v=b0PgJ4fqpIM Khat]</ref> Recent "scandals" involving Mad Cow Disease in Britain, <ref>[http://www.centerforfoodsafety.org/campaign/food-safety/mad-cow-disease/other-resources/a-consumers-guide-to-mad-cow-disease/history-of-rendering-cattle-cannibalism-in-the-usa/ History of Rendering]</ref> the fraudulent supply of horse meat sold as beef in Europe,<ref>[http://www.theaustralian.com.au/news/world/horsemeat-scandal-a-global-conspiracy/story-e6frg6so-1226574880191 Horsemeat a global conspiracy]</ref> rat poison found in Polish dairy products<ref>[http://www.wbj.pl/article-61746-scandals-rock-polish-food-exports.html Scandals Rock Polish Food Exports]</ref> and rat meat fraudulently sold as lamb in China<ref>[http://www.zerohedge.com/news/2013-05-03/forget-horse-meat-or-fake-tuna-rat-meat-being-sold-lamb-china Rat Meat Sold as Lamb in China]</ref> could be seen as the logical conclusion of Rowbotham's analysis, as economic pressures build to systematically debase the quality of inputs throughout the food chain as producers fight the effects of cost-push inflation and try to satisfy the need for ever-increasing productivity in the industrialized food industry by systematically debasing their products until they are not fit for human consumption, but are allowed to be consumed by the authorities anyway because of the urgent need to feed the general population within their shrinking incomes.<ref>[http://www.edmundconway.com/2013/02/horse-meat-scandal-the-economics/ Horse meat scandal: the economics]</ref><ref>[http://www.theaustralian.com.au/news/world/horsemeat-scandal-a-global-conspiracy/story-e6frg6so-1226574880191 Horsemeat a global conspiracy]</ref> For example, it is alleged that Mad Cow Disease was caused by British authorities reducing heating standards in the waste meat rendering process to reduce the cost of food production in Britain. Food scandals are becoming so prevalent a new term "Food Fraud" has become popular to describe this escalating phenomenon, mirroring monetary fraud in the wider economic system.<ref>[http://www.zerohedge.com/news/2013-05-03/forget-horse-meat-or-fake-tuna-rat-meat-being-sold-lamb-china Rat Meat Being Sold as Lamb in China]</ref> If Rowbotham's analysis is correct, these food contamination and food debasement scandals will become ongoing and endemic in coming years, but may be censored by the authorities in future to avoid widespread protests.<ref>[http://www.zerohedge.com/news/2013-02-11/guest-post-more-stealth-inflation-maker%E2%80%99s-mark-slashes-alcohol-content More Stealth Inflation]</ref><ref>[http://www.edmundconway.com/2013/02/horse-meat-scandal-the-economics/ Horse meat scandal: the economics]</ref><ref>[http://www.zerohedge.com/contributed/2013-02-14/hidden-inflation-everywhere-watered-down-bourbon-horse-meat-chili Hidden Inflation Everywhere]</ref><ref>[http://en.wikipedia.org/wiki/2008_Chinese_milk_scandal Chinese Milk Scandal]</ref> This has already occurred in China with authorities trying to censor reports of toxic melamine in Chinese milk products<ref>[http://en.wikipedia.org/wiki/2008_Chinese_milk_scandal Chinese Milk Scandal]</ref> and in the UK with British authorities downplaying or delaying information relating to the huge scale of the horse meat scandal.<ref>[http://www.youtube.com/watch?v=SxZtfi2pYNo&list=SPPszygYHA9K2ZtV_1KphSugBB7iZqbFyz&index=6 Horsemeat Burgers], Max Keiser</ref> Max Keiser has made a direct connection between stealth monetary debasement throughout the banking system and stealth debasement of inputs throughout the British food chain.<ref>[http://www.youtube.com/watch?v=SxZtfi2pYNo&list=SPPszygYHA9K2ZtV_1KphSugBB7iZqbFyz&index=6 Horsemeat Burger]</ref> Quality adjustments in official CPI measurements often ''reduce'' the rate of inflation by assuming quality ''improvements'' - however no government has taken into account these food scandals in ''increasing'' the effective rate of inflation by taking into account dramatic ''reductions'' in the quality of food production.<ref>[http://www.abs.gov.au/websitedbs/webfaq.nsf/home/consumer+price+index+faqs CPI FAQs]</ref><ref>[http://www.econ.rochester.edu/people/BilsPapers/growth_qje_revision_August_2008.pdf BLS paper on CPI adjustments for quality]</ref><ref>[http://www.zerohedge.com/news/2013-03-02/first-horsemeat-trading-now-59-tuna-sold-us-isn%E2%80%99t-tuna 59% Of Tuna Isn't Tuna]</ref> If the dramatic degradation in the quality of food production was fully taken into account, it is likely that "true" inflation would be measured far in excess of official figures, and may in some instances (such as with the UK horse meat scandal) be reaching something similar to hyperinflation in some years, as food that changes from "beef" to "horse meat" is effectively a tiny fraction of the quality of the product of only a few years or months ago.<ref>[http://www.youtube.com/watch?v=SxZtfi2pYNo&list=SPPszygYHA9K2ZtV_1KphSugBB7iZqbFyz&index=6 Horsemeat Burgers], Max Keiser</ref>

Others consider that the core problem is not food security, nor overpopulation, nor environmental destruction, nor excessive carbon emissions due to non-pricing of energy producing externalities, nor excessive "specialization" of labor in the midst of monetary dysfunction, but excessive government regulation, causing capital destruction.<ref>[http://mises.org/daily/5277/When-Capital-Is-Nowhere-in-View When Capital Is Nowhere In View], Jeffrey Tucker</ref><ref>[http://www.garynorth.com/public/8071.cfm Population Growth as Propaganda], Gary North</ref><ref>[http://www.marketoracle.co.uk/Article39449.html An Orwellian America], Gordon T Long</ref>

The fundamental problem with the current monetary system that all Austrian economists agree on is that in the midst of constant credit creation and monetary dysfunction is it ''impossible'' to know what unsustainable [[malinvestment]]s are taking place in the economy, except to acknowledge that they ''must'' be taking place somewhere in the midst of unsustainable credit growth.<ref>[http://www.goldensextant.com/SavingtheSystem.html Saving the System], Robert K. Landis</ref>

===Effects on economic health: Ponzi scheme dynamics===

According to Michael Rowbotham and many Austrian theorists the expansion of money through debt is unsustainable and necessarily fuels and creates [[Austrian Business Cycle Theory|economic bubbles]].<ref>[http://mises.org/daily/5567/Hayeks-Ghost-Haunts-the-World Hayek's Ghost Haunts the World], Jeffrey Tucker</ref> This concentrates wealth in the hands of private banks as the populace is forced into [[debt]] simply to own a home and educate their children, hoping that the loans can be repaid by others going into debt in ''greater amounts'' later to purchase the assets they themselves have purchased through incurring large amounts of personal debt.<ref name="death"/> However, debt expansion leads to price appreciation of assets through speculation as the financial market becomes riskier and this process is unsustainable in the long run, with the last cycle of indebted being wiped out when they cannot find anyone to buy the assets they themselves have purchased by going into massive debt. Doug Noland, Steve Keen, Edward Chancellor, Bill Bonner and many others have compared this type of market to an enormous State-sponsored global monetary [[Ponzi scheme]].<ref>[http://www.debtdeflation.com/blogs/2008/12/13/the-worlds-biggest-ponzi-scheme/ The World's Biggest Ponzi Scheme], Steve Keen</ref><ref>[http://www.iimagazine.com/article.aspx?articleID=1234345 Ponzi Nation,"Who is Hyman Minsky?", para 6]</ref><ref>[http://www.marketoracle.co.uk/Article26678.html One Gargantuan Ponzi Scheme], Paul Hallyer</ref><ref>[http://prudentbear.com/dmdocuments/HowCouldIrvingFisherHaveBeenSoWrong.pdf How Could Irving Fisher Have Been So Wrong?], Doug Noland</ref><ref>[http://globaleconomicanalysis.blogspot.com/2010/08/former-fed-governor-mishkin-paid-124000.html Mishkin], MISH</ref><ref>[http://www.lewrockwell.com/bonner/bonner467.html Warning], Bill Bonner</ref>

The bust phase of this Ponzi-like [[business cycle]] occurs when "debt-based" money growth cannot continue because the debt levels are already at saturation levels, meaning growth in debt money slows or contracts, catching newly indebted businesses and consumers who are left out of the growth cycle, triggering a combined liquidity and solvency crisis when markets seize up due to a collapse in the artificially-supported prices in financial markets.<ref name="death"/><ref name="Ponzi Nation"/>

===Effects on the environment===
There are also critics in the left-wing and environmentalist camps who contend fractional reserve banking (by creating a necessity for indefinite [[economic growth]]) leads to environmental destruction and a sudden, catastrophic depletion of the earth's natural resources as the unsustainable, exponential consumption of the world's scarce natural resources reaches its inevitable limits.<ref>David Korten, ''Agenda For A New Economy'', Berret-Koehler, 2009</ref><ref>[http://www.monbiot.com/archives/2004/10/06/no-longer-obeying-orders/ George Monbiot], about five sixths of the way down</ref>

===Inherent problems with the system===

Some monetary reformers predict that there will be an increased incidence of financial crises in the developed world, as economic and population growth inevitably slow and as the success of financial sector lobbying results in increased tax loopholes and a reduction in effective redistributive [[tax]]es which, combined with the debt-legacy of the [[welfare state]], allows an intense and unsustainable concentration of wealth and political power in the financial services sector.<ref name="death">{{cite book |last= Rowbotham |first= Michael |title= The Grip of Death: A Study of Modern Money, Debt Slavery and Destructive Economics | year= 1998 |publisher= Jon Carpenter Publishing |isbn= 9781897766408 }}</ref><ref>[http://www.youtube.com/watch?v=TdVc40Mc9cQ&feature=related Andrew Sheng, INET presentation]</ref><ref>[http://mises.org/daily/6653/How-Central-Banks-Cause-Income-Inequality Central Banks Cause Income Inequality]</ref>

Some monetary reformers argue that perverse incentives in the financial services industry lead to collusive relationships between governments and bankers which are economically and socially destablizing in the long run.<ref>[http://mises.org/media/4014 The Economics of Legal Tender Laws], Jorg Guido Hulsmann</ref>

Given that the financial system requires ever higher levels of indebtness from the general populace for its solvency, it is vital that the indebted "victims" who must sink deeper into debt for the system to survive do so voluntarily and willingly and are not made aware of the consequences of purchasing consumables with debt money.<ref name="death">{{cite book |last= Rowbotham |first= Michael |title= The Grip of Death: A Study of Modern Money, Debt Slavery and Destructive Economics | year= 1998 |publisher= Jon Carpenter Publishing |isbn= 9781897766408 }}</ref> Some isolated politicians have previously highlighted the fact that mainstream media organizations appear to downplay or minimize the seriousness of deficit spending by government and debt-sourced spending of all kinds.<ref>[http://www.senate.gov/~budget/democratic/statements/2005/fs_reconciliationfloorstmt102005.pdf Speech by Senator Kent Conrad (D-ND) on October 20, 2005 regarding the "misleading" reporting of deficit spending by the mainstream media]</ref> Euphemisms for debt and personal and national bankruptcy associated with debt have been developed to delay a mass panic away from government bonds or debt. For example, the associated growth of debt-based derivatives during the upward phase of the debt money cycle was referred to as "[[innovation]]" in financial markets.<ref>[http://www.nytimes.com/2007/12/03/opinion/03krugman.html?em&ex=1196917200&en=ac60abcdbd977d07&ei=5087%0A Innovating Our Way to Financial Crisis, by Paul Krugman]</ref>

[[Bankruptcy]] laws differ to a small degree in different jurisdictions but in all developed economies unpaid debt results in legal penalties, property confiscation on behalf of the creditor and income [[sequestration]]. Although in Christian, Jewish and Muslim religious practice there have been traditions of debt relief or laws against [[usury]], in no modern Western jurisdiction are any debts periodically forgiven or cancelled in recognition of the inherent impossibility of repaying debts in circumstances where the debt-based monetary cycle has inevitably resulted in too little new [[debt money]] being injected into the [[money supply]] to pay for the currently outstanding debts.<ref>[http://www.nakedcapitalism.com/2007/11/new-bankruptcy-law-backfires-by.html Bankruptcy law backfires]</ref>

On a national level, if the issuance of [[government bonds]] becomes unsustainable, sovereign [[bankruptcy]] can occur - and has occurred many times in history.<ref>[http://mises.org/daily/4869 Can the Fed Become Insolvent?], Robert Murphy</ref><ref>[http://elainemeinelsupkis.typepad.com/money_matters/2007/10/greenspaniel-an.html Greenspaniel and U.S. bankruptcy]</ref><ref>[http://www.prudentbear.com/index.php/thebearslairview?art_id=10493 Dee-Fault!], Martin Hutchinson, Prudent Bear</ref> [[Sovereign debt]] crises due to the inability of nations to pay interest on [[government bonds]] have occurred frequently and regularly in the third world and less frequently (every 30 years or so) in the first world as a result of high levels of unsustainable public debt - often because private debts are assumed by a corrupt government through large private bank bailouts.<ref>[http://www.dailymail.co.uk/debate/article-1331076/Ireland-bailout-Lets-frank-7bn-bunch-liars-crooks-bunglers.html Ireland Bailout], Alex Brummer</ref><ref name="Willie_Misdiagnosis">[http://www.marketoracle.co.uk/Article24543.html QE2 and the Great Economic Misdiagnosis], Jim Willie, November 24, 2010.</ref> The [[Latin American debt crisis]] is an example of sovereign debt levels becoming unsustainable, resulting in a [[currency crisis]] and economic collapse, as [[interest rates]] rise precipitously due to the inability of the national government to attract financiers to purchase new [[government bonds]] to inject new debt money into the ailing economy.<ref name="Willie_Misdiagnosis" />

At such times, it is the responsibility of the [[IMF]] to come in as a kind of supranational [[central bank]] to mediate between the national government and international financiers.<ref>[http://globaleconomicanalysis.blogspot.com/2011/05/imf-chief-pulled-from-plane-in-new-york.html Time to Dissolve the IMF], MISH</ref> The role of the [[IMF]] as [[central bank]] to the world has similar responsibilities and risks inherent in [[central bank]]ing which are described below in relation to the role of the [[Federal Reserve]]. If the [[IMF]] repeatedly intervenes to save financiers from loss when sovereign bankruptcy occurs, this has a tendency to induce [[moral hazard]] and can encourage the financing of reckless government spending and borrowing.<ref>[http://www.rgemonitor.com/41 IMF Reform and International Lender of Last Resort, RGE Monitor]</ref><ref>[http://info.interactivist.net/article.pl?sid=02/11/07/199213&mode=thread&tid=8 Banking Bunkum, by Henry C.K. Liu]</ref><ref name="Willie_Misdiagnosis" />

A [[single currency]] regime such as the [[Euro]] can mask national liquidity or solvency crises, by ensuring that a national currency is not quickly exchangeable for another, thereby restricting the ability of national governments to depreciate their currencies and cutting off the possibility that the real value of [[government bond]] interest repayments could decline relative to other currencies.<ref>[http://www.dailymail.co.uk/news/article-1316442/Anglo-Irish-Bank-bail-Will-Irish-economic-meltdown-hit-UKs-fragile-recovery.html Irish Meltdown], UK Mail On-line,</ref><ref>[http://www.marketoracle.co.uk/Article24459.html Ireland Bailout Consequences for Britain, Portugal Next?], Nadeem Walayat</ref><ref name="Willie_Misdiagnosis" /><ref>[http://news.goldseek.com/RichardDaughty/1192374060.php The Mogambo Theory of Currency Relativity]</ref><ref>[http://www.youtube.com/watch?v=IvJEJEGzeU8&feature=player_embedded#! Putin ditches dollar], RTTV</ref> This may however increase the risk of bond default where indebted national governments cannot pay back the interest payments in the denominated common currency.<ref>[http://www.dailymail.co.uk/news/article-1316442/Anglo-Irish-Bank-bail-Will-Irish-economic-meltdown-hit-UKs-fragile-recovery.html Irish Meltdown], UK Mail On-line,</ref><ref>[http://blog.mises.org/15129/bagus-explains-the-ecb-and-the-euro/ The Tragedy of the Euro], Philipp Bagus</ref>

===Types of downturns===
{{main|Austrian Business Cycle Theory}}
[[Austrian Business Cycle Theory]] states that artificially low interest rates set by any coercive price-fixing entity will inevitably stimulate malinvestment in the wrong capital projects which will inevitably lead to an unsustainable boom followed by a bust.<ref>[http://mises.org/daily/5164/The-Cure-Low-Interest-Rates-Is-the-Disease The Cure (Low Interest Rates) Is The Disease], Thorsten Polleit</ref> However, the precise nature of the downturn and the way in which losses are allocated within the economy are both dependent on the actions government and bankers take to forgive debt or control credit and there are two main kinds of debt money contraction that can cause a collapse in the value of inflated assets.

A "credit squeeze" occurs where new debt money is difficult to access without a high [[credit rating]]. At such times marginal borrowers, or those who have borrowed at the end of any debt-induced asset bubble, get "squeezed" out of further borrowing and a contraction in the growth of new debt money occurs, triggering a slow down in the growth of inflated assets. Those assets can then be "harvested" by the [[private bank]]s through widespread [[foreclosure]] or [[bankruptcy]] and re-sold to those with the money to buy the distressed assets.<ref name="marketoracle.co.uk">[http://www.marketoracle.co.uk/Article2882.html Market Fundamentalism, by Richard C. Cook]</ref>

A "credit crunch" occurs where new debt money is not available at any [[interest rate]] - even for those with previously acceptable credit ratings - due to widespread insolvency in the banking system. At such times, it is the banking system itself that is [[insolvent]] and other financial institutions (including overseas financiers) become reluctant to lend to the domestic banking system, resulting in the domestic banking system being unable to issue loans even to credit worthy borrowers.<ref>[http://en.wikipedia.org/wiki/Credit_crunch Credit crunch], Wikipedia definition</ref>

At any stage during the downward spiral of a "credit crunch", the [[central bank]] in a modern economy can try to save the system from complete economic meltdown by purchasing (either indefinitely or temporarily) the failed debts of the private banks.<ref>[http://www.youtube.com/watch?v=PTUY16CkS-k&feature=player_embedded#! Quantitative Easing Explained]</ref><ref>[http://www.marketoracle.co.uk/Article24489.html Does the Fed Create Money?] Michael Pento</ref><ref>[http://www.telegraph.co.uk/money/main.jhtml?view=DETAILS&grid=A1YourView&xml=/money/2007/12/19/ccom119.xml ECB's mind-numbing cash injection]</ref> This involves swapping depreciating "failed" assets with hard cash, thereby allowing the banks to maintain their net asset position and continue to give the impression of solvency to their auditors and depositors. However, doing so results in cash being transferred to the private banks in exchange for [[bad debt]], thereby violating the general economic precept to avoid [[moral hazard]] and effectively makes liquid the failed lending decisions of the [[private bank]]s.<ref>[http://globaleconomicanalysis.blogspot.com/2011/06/prudently-managed-banks-victimized-by.html Prudent Banks Victimized], MISH</ref><ref>[http://www.rgemonitor.com/blog/roubini/228924/ Privatizing Profits and Socializing Losses, by Nouriel Roubini]</ref> In the U.S. banking system this is called "opening the Fed discount window", where the [[Federal Reserve]] temporarily purchases the failed investment portfolios of distressed private banks in exchange for cash. However, this rescue measure may only delay, rather than avoid, the realization of losses in the banking system, as the central bank cannot "force" new borrowing into the system to inject new debt money into the money supply. Somebody has to be a [[counterparty]] to borrow the debt money that is being offered. If all market participants realize a "[[bubble (economics)|bubble]]" has formed in assets markets, there will be few (or no) buyers for new debt money, as no one wants to borrow to buy inflated assets no one else will buy. Money markets can therefore remain illiquid even with intense [[central bank]] support.<ref>[http://www.prudentbear.com/index.php/creditbubblebulletinview?art_id=10511 Favorable or Unfavorable], Doug Noland, Prudent Bear</ref>

Furthermore, banks can go bust even with intense central bank support, if the issue is not one of liquidity, but one of solvency.<ref>[http://www.ft.com/cms/s/0/233ae764-abef-11dc-82f0-0000779fd2ac.html Central Banks have No Plan]</ref><ref>[http://www.rgemonitor.com/blog/roubini/233120 Central Banks get desperate]</ref><ref>[http://www.youtube.com/watch?v=VMngK0t5WkY $20 Trillion in Bad Debt], Max Keiser</ref><ref>[http://www.marketoracle.co.uk/Article27686.html Bernanke's QEx Money Printing Box], Gordon T. Long</ref>

===Market meddling and pushing on a string===
Some monetary economists describe the opening of the Fed discount window after the bursting of an asset bubble and swapping of "junk" with new money as "pushing on a piece of string", as this measure does not solve the key problem – creating new credit (or debt money) to keep up the growth in the money supply and maintain the required level of liquidity in credit markets.<ref>[http://www.mises.org/story/2695 Don't Discount the Fed Discount Window]</ref><ref>[http://www.federalreserve.gov/Pubs/FEDS/2004/200401/200401pap.pdf Monetary Policy in Deflation: The Liquidity Trap in History and Practice]</ref> This is because unlimited central bank money and low interest rates ''allow'' credit creation, but cannot ''force'' it into the system. In order for any new debt money to be created, someone has to ''borrow'' the excess reserves in order for the money to be injected into the system. With an endogenous money system, money is only created if someone wants to borrow money from a bank. If corporations and individuals are already heavily indebted (or insolvent after the bursting of a debt-induced bubble) there are no credit-worthy borrowers to lend to. This means there are no new buyers at the margin to keep asset prices at high levels. If there are no new marginal buyers, "liquidity" - or debt growth - dries up and volumes and prices drop suddenly, forcing liquidation and creating a sudden cascading effect in highly leveraged markets very similar to the end of an unsustainable Ponzi scheme. The only ones able to stimulate the economy are the tiny minority of bankers who have been bailed out by the central bank and even if they spent lavishly to try to "help" the economy, this would in no way compensate for the lack of spending in the general economy.

To encourage fresh borrowing, central banks generally combine these rescue measures with an interest rate cut to encourage more new borrowing to allow the existing (failed) debts to be [[liquidate]]d at or close to their original value. When [[Alan Greenspan]] repeatedly resorted to this tactic to revive illiquid [[money market]]s this became known in the market as the "[[Greenspan put]]", as the effect of these repeated reductions in interest rates was similar to a [[put option]] in the [[stockmarket]], insuring [[bank]]s' lending mistakes would be covered up by the Federal Reserve.<ref>[http://www.iie.com/publications/wp/02-1.pdf Moral Hazard and the "Greenspan Put"]</ref>

When interest rates cannot go any lower (the so-called "zero bound" monetary problem) and people still will not - or cannot - load themselves up with more debt, then to stave off a collapse of market prices due to the drying up of marginal buyers at inflated debt-saturated prices central banks have resorted to "Quantitative Easing" - which is the abandonment of interest rate setting and the targeting of bulk purchases of bank assets to artificially pump up their price and keep the banking system solvent.<ref>[http://www.marketoracle.co.uk/Article38855.html QE for Dummies], Dr Martenson</ref> In addition, the Keynesian solution is to run large public deficits and indebt future generations (who, they hypothesize, are more likely to be able to pay through increased future growth).<ref>[http://www.zerohedge.com/news/2013-02-09/paul-krugman-we-should-kick-can-down-road-it%E2%80%99s-responsible-thing-do "Kick the Can Down the Road"]</ref><ref>[http://www.nytimes.com/2010/12/26/business/26view.html?_r=1&scp=1&sq=shiller&st=cse Stimulus Without More Debt], Robert Shiller</ref> Fabian socialists, and Keynesian economists such as Paul Krugman and Robert Shiller, argue that governments must take charge of the responsibility of spending more (and taking on more debt) on behalf of the public (who are too fearful to take on more debt themselves) in order to compensate for the immediate and urgent ''present'' insufficiency in total private consumption.<ref>[http://www.zerohedge.com/news/2013-02-09/paul-krugman-we-should-kick-can-down-road-it%E2%80%99s-responsible-thing-do "Kick the Can Down the Road"]</ref><ref>[http://www.nytimes.com/2011/09/05/opinion/the-fatal-distraction.html?src=me&ref=general The Fatal Distraction], Paul Krugman</ref><ref>[http://www.nytimes.com/2010/12/26/business/26view.html?_r=1&scp=1&sq=shiller&st=cse Stimulus Without More Debt], Robert Shiller</ref><ref>[http://mises.org/daily/5616/Is-the-Need-for-Stimulus-Undeniable Is the Need for Stimulus "Undeniable"?], Hunter Lewis</ref> Paul Krugman and Robert Reich are prominent advocates of the policy of spending trillions of government money to help stimulate the economy, if spending billions does not work.<ref>[http://www.realclearpolitics.com/video/2011/09/01/reich_government_has_to_spend_more_to_get_out_of_debt.html Reich: Government Has To Spend More To Get Out Of Debt]</ref><ref>[http://www.nytimes.com/2010/06/21/opinion/21krugman.html?dbk Budget Deficits], Paul Krugman</ref><ref>[http://globaleconomicanalysis.blogspot.com/2010/10/krugman-and-inevitable-i-told-you-so.html Krugman], MISH</ref><ref>[http://krugman-in-wonderland.blogspot.com/2010/11/inflation-prisoner.html The Inflation Prisoner], William Anderson</ref> For economists such as Paul Krugman, if the "more and more government spending" solution does not work initially, it is a sign that not enough government money has been spent.<ref>[http://www.lewrockwell.com/sowell/sowell44.1.html Fed Up With the Fed?], Thomas Sowell</ref><ref>[http://www.nytimes.com/2010/12/20/opinion/20krugman.html?hp When Zombies Win], Paul Krugman, NY Times</ref><ref>[http://globaleconomicanalysis.blogspot.com/2010/10/krugman-and-inevitable-i-told-you-so.html Krugman], MISH</ref> It is his view that the "deflationary" Japanese recession from 1991/2 could have been cured by the Japanese government going into even more debt than the current net debt to GDP ratio of 110%.<ref>[http://www.nytimes.com/2010/06/21/opinion/21krugman.html?dbk Budget Deficits], Paul Krugman</ref><ref>[http://www.economist.com/node/15867844 Japan's debt-ridden economy], The Economist</ref> Although some commentators have puzzled over exactly which group Krugman blames for the crisis, Krugman repeatedly calls for the government "to do more" and "spend more" as the "responsible" way out of the crisis, regardless of the true culprits or cause of the crisis.<ref>[http://www.zerohedge.com/news/2013-02-09/paul-krugman-we-should-kick-can-down-road-it%E2%80%99s-responsible-thing-do "Kick the Can Down the Road"]</ref><ref>[http://www.nytimes.com/2011/08/08/opinion/credibility-chutzpah-and-debt.html?_r=1&hp Credibility, Chutzpah and Debt], Paul Krugman</ref><ref>[http://www.thedailybell.com/2271/Shock-Krugman-Turns-on-Elites.html Shock Krugman Turns on Elites], The Daily Bell</ref><ref>[http://www.nytimes.com/2011/04/11/opinion/11krugman.html?_r=2&hp Obama Is Missing], Paul Krugman</ref> When pressed to find culprits he identifies "extremist" Republicans and, somewhat paradoxically, those who call for ''fiscal restraint'' to be the real source of the debt crisis and the downgrading of US sovereign debt.<ref>[http://www.nytimes.com/2011/08/08/opinion/credibility-chutzpah-and-debt.html?_r=1&hp Credibility, Chutzpah and Debt], Paul Krugman</ref> How ''increasing'' the debt load will solve the debt problem is never explained, apart from Krugman repeatedly stating that the "long-term" debt problem is not as important as the immediate and urgent "lack of spending" problem.<ref>[http://www.zerohedge.com/news/2013-02-09/paul-krugman-we-should-kick-can-down-road-it%E2%80%99s-responsible-thing-do "Kick the Can Down the Road"]</ref> Krugman has never advocated the simple solution of debt default as the way to solve the debt crisis, despite de-emphasizing the scale of the debt by arguing that we (mostly) "owe it to ourselves".<ref>[http://krugman.blogs.nytimes.com/2011/12/28/debt-is-mostly-money-we-owe-to-ourselves/ Debt is mostly money we owe to ourselves]</ref> If this was the case, debt default would be the easiest solution. On the other hand, Paul Krugman has yet to clearly identify a country or a time when government spending became excessive or was out of control and resulted in too much accumulation of debt and malinvestment during an economic slowdown. He has intimated that, perhaps, the Greek government may have spent too much, but he treats that as an isolated case and not applicable to the rest of Europe or the United States, despite some countries having comparable debt levels to Greece's.<ref>[http://www.nytimes.com/2011/09/12/opinion/an-impeccable-disaster.html?_r=1&hp An Impeccable Disaster], Paul Krugman</ref> He has also never explained or written about what happens ''after'' government stimulus spending inevitably stops, which Austrians argue would inevitably result in an even bigger slump if it is not continually replaced with something similar or bigger.<ref>[http://krugman.blogs.nytimes.com/2013/05/09/the-moral-equivalent-of-space-aliens/ Space Aliens], Paul Krugman. Quote: "To almost everyone’s surprise, Japan — Japan! — has emerged as the advanced country most willing to break with austerian orthodoxy and try a combination of aggressive monetary and fiscal stimulus. The verdict on Abenomics is, of course, still out, although early indications are good. But how did this happen? David Pilling , writing in the FT, suggests that it was the double shock of the 2011 tsunami and China’s overtaking of Japan as the number 2 economy by market value. These shocks, he argues, broke through the fatalism and convinced the Japanese elite that something must be done. Long-time readers know that I once joked that what we needed in America was a fake threat from space aliens, which would jolt us into action on stimulus; '''if the aliens were later revealed as a hoax, no matter'''. Well, it looks as if Japan has found the moral equivalent of space aliens. Good for them." (emphasis added)</ref> If further attempts at artificial government-induced "stimulus" ''are'' attempted, Austrians argue that this pointless exercise would simply further distort capital structures throughout the economy. They therefore see the slump as curative, even if it results in bank runs and financial crises. They see light at the end of the depression, once the re-pricing of capital goods and financial assets returns the economy to a sound, stable footing - provided ''no bailouts occur, debts are liquidated and reduced or cancelled and provided asset prices are permitted to fall''.<ref>[http://www.zerohedge.com/news/guest-post-keynesian-solutions-after-total-failure-try-try-again Keynesian Solutions Total Failure]</ref><ref>[http://dailyreckoning.com/the-pain-of-restoring-investor-confidence/ The Pain of Restoring Investor Confidence], Bill Bonner</ref><ref>[http://dailyreckoning.com/government-spending-and-the-path-to-money-printing/ Government Spending and the path to Money Printing], Bill Bonner</ref><ref>[http://www.prudentbear.com/index.php/featuredcommentaryview?art_id=10485 Krugman Is Eating America Alive], Neeraj Chaudhary, Prudent Bear</ref><ref>[http://www.marketoracle.co.uk/Article25163.html Keynesian models], Robert Murphy</ref><ref>[http://krugman-in-wonderland.blogspot.com/2010/11/inflation-prisoner.html The Inflation Prisoner], William Anderson</ref><ref>[http://www.lewrockwell.com/north/north925.html Yes, Virginia, There Really Is a Free Lunch], Gary North</ref><ref>[http://mises.org/daily/5257/They-Want-Us-to-Love-the-Fed They Want Us to Love the Fed], William L. Anderson</ref><ref>[http://lewrockwell.com/rockwell/many-collapses-of-keynesianism189.html The Many Collapses of Keynesianism], Lew Rockwell,</ref>

Although there is active debate as to whether Keynesian "stimulus" policy (spending money and thereby indebting future generations, with the government spending debt-sourced money on projects the private sector would not touch) can actually help the economy long term,<ref>[http://www.zerohedge.com/news/2014-01-30/fed-has-fingers-thumbs-scales-finance-grant-tells-santelli-and-it-will-end-badly It Will End Badly]</ref><ref>[http://www.mises.org/daily/6357/Feds-Policies-Expose-Mainstream-Fallacies Mainstream Fallacies], Frank Shostak</ref><ref>[http://www.zerohedge.com/news/guest-post-keynesian-solutions-after-total-failure-try-try-again Keynesian Solutions Total Failure]</ref><ref>[http://dailyreckoning.com/the-pain-of-restoring-investor-confidence/ The Pain of Restoring Investor Confidence], Bill Bonner</ref><ref>[http://dailyreckoning.com/government-spending-and-the-path-to-money-printing/ Government Spending and the path to Money Printing], Bill Bonner</ref><ref>[http://www.prudentbear.com/index.php/featuredcommentaryview?art_id=10485 Krugman Is Eating America Alive], Neeraj Chaudhary, Prudent Bear</ref><ref>[http://www.marketoracle.co.uk/Article25163.html Keynesian models], Robert Murphy</ref><ref>[http://krugman-in-wonderland.blogspot.com/2010/11/inflation-prisoner.html The Inflation Prisoner], William Anderson</ref><ref>[http://www.lewrockwell.com/north/north925.html Yes, Virginia, There Really Is a Free Lunch], Gary North</ref><ref>[http://mises.org/daily/5257/They-Want-Us-to-Love-the-Fed They Want Us to Love the Fed], William L. Anderson</ref><ref>[http://lewrockwell.com/rockwell/many-collapses-of-keynesianism189.html The Many Collapses of Keynesianism], Lew Rockwell,</ref> there is no argument that this would undoubtedly help the present group of private bankers, as increased income from the interest payments on new government bond issuance offsets the decline in private sector debt and allows banks to survive when otherwise they may face collapse due to the fatal impairment of their balance sheets through private debt write-offs after an unsustainable debt-fuelled bubble bursts.<ref>[http://georgewashington2.blogspot.com/2010/08/quantitative-easing-wont-help-economy.html QE won't help the economy]</ref><ref>[http://moneymorning.com/2010/11/19/federal-reserves-quantitative-easing-strategy-save-the-us-economy/ QE won't save the economy]</ref>

As government debt is effectively an asset on the books of the banks, increasing Treasury bond issuance necessarily increases the profitability and net asset position of the debt-issuing banks - at least until government insolvency or mass tax evasion renders the value of those bonds worthless.<ref>[http://www.marketoracle.co.uk/Article25313.html Asset Speculation and Capital Destruction], Jim Willie</ref><ref>[http://www.prudentbear.com/index.php/featuredcommentaryview?art_id=10485 Krugman Is Eating America Alive], Neeraj Chaudhary, Prudent Bear</ref>

Perhaps in recognition that increasing debt to solve a debt crisis does not work even in the short term, in early 2013 Krugman resorted to advocating the coining of a debt-free trillion dollar platinum coin to solve the debt crisis and revive the economy.<ref>[http://www.thenewamerican.com/economy/economics/item/14238-obama%E2%80%99s-trillion-dollar-coin-exposes-federal-reserve-scam Obama’s Trillion-Dollar Coin Exposes Federal Reserve Scam], Alex Newman, ''New American''</ref><ref>[http://webofdebt.wordpress.com/2013/01/18/the-trillion-dollar-coin-joke-or-game-changer/#more-5323 The Trillion Dollar Coin], Ellen Hodgson Brown</ref> Some Austrians have argued Krugman's support of the trillion dollar coin is the logical ''reductio ad absurdum'' of Keynesian economics.<ref>[http://bastiat.mises.org/2013/01/trillion-dollar-coins-and-alien-invasions/ Trillion Dollar Coins and Alien Invasions], Daniel Sanchez</ref>

===Inequities in the debt-based monetary system===
Many inequities arise because of the damage an overly leveraged financial system and big spending government can have on the real economy.<ref>[http://www.marketoracle.co.uk/Article26581.html Ten Reasons The Banksters Got Away With It], Danny Schechter</ref><ref>[http://www.marketoracle.co.uk/Article28949.html United States of Denial], James West</ref> The standard government strategy to help the banks out of the "tailspin" of an insolvency crisis follows a standard chronology:

The government first tries to stimulate the economy and spend money into the markets directly without individuals needing to borrow and spend, thereby "inflating" its way out of economic crisis by causing asset prices to rise and bank balance sheets to appear solvent. It currently does this principally by borrowing newly created money from the central bank and then spending this new money on projects that the private sector is not already engaged in.<ref>[http://www.marketoracle.co.uk/Article25964.html QE is Nothing New], Mike Hewitt</ref><ref>[http://www.mises.org/daily/6357/Feds-Policies-Expose-Mainstream-Fallacies Mainstream Fallacies], Frank Shostak</ref>

Unfortunately, there is no easy solution to an economy-wide insolvency crisis caused by excessive credit expansion.<ref>[http://www.zerohedge.com/news/2013-11-07/marc-faber-warns-karl-marx-was-right Karl Marx Was Right], Marc Faber</ref><ref>[http://www.prudentbear.com/index.php/creditbubblebulletinview?art_id=10511 Favorable or Unfavorable], Doug Noland, Prudent Bear</ref> In a sound money system the credit would not have been created, so dealing with the problem once created is inherently flawed. If a slow down of money and credit occurs, this exposes those who came late to the boom and transfers assets to the banking system via widespread insolvency. If the central bank encourages even more lending or the government spends more money this creates more distortions and uncertainties in the market, hampering long term investment. Government spending is often attempted as a way to stave off widespread insolvencies but this only further distorts the economy through widespread malinvestment.<ref>[http://mises.org/store/Rollback-P10449.aspx ''Rollback''], Thomas Woods</ref> Later, after the immediate crisis, when tax receipts from the private sector decline due to reduce private investment, governments are often forced to reduce basic social services or welfare to the poor to pay for the increased bond payments to bankers and other wealthy investors, making those least responsible and least able to pay for the crisis suffer wrenching economic hardship due to excessive public and private debt/credit creation.<ref>[http://www.marketoracle.co.uk/Article26581.html Ten Reasons The Banksters Got Away With It], Danny Schechter</ref><ref>[http://mises.org/store/Rollback-P10449.aspx ''Rollback''], Thomas Woods</ref>

Antal E. Fekete compares quantitative easing to the repeated supply of opium by an immoral drug dealer to a dependent drug addict:<ref>[http://www.marketoracle.co.uk/Article26339.html Silver and Opium], Antal E. Fekete</ref>

{{quote|The explanation for this self-destructing behavior is the addictive, debilitating and mind-corrosive nature of paper money, in direct analogy with that of opium. The high caused by administering the opium pipe to the patient (read: administering QE) had to be repeated when the effect faded by a fresh administration of more opium (read: more QE2).}}

Aside from the [[moral hazard]] issue, the key risk with [[quantitative easing]] is that the [[central bank]] exposes the financial system to disruptive inflation, as the growth in the [[money supply]] spirals out of control due to the need to save the [[bank]]s from themselves.<ref>[http://www.lewrockwell.com/north/north961.html Tiger], Gary North</ref><ref>[http://www.marketoracle.co.uk/Article27530.html The Fed Obliterates the Savings Ethic], Douglas French</ref> This eventually tends to precipitate a currency and/or government bond crisis, as the debt-based currency becomes completely dysfunctional when either the currency becomes worthless or when debtors - including government debtors - cannot even pay interest on the debt money.<ref>[http://www.marketoracle.co.uk/Article25964.html QE is Nothing New], Mike Hewitt</ref><ref>[http://www.marketoracle.co.uk/Article25313.html Asset Speculation and Capital Destruction], Jim Willie</ref><ref>[http://www.swlearning.com/economics/hall/hall-lieb2e-upd/ppt_lecture/exchange_rate_macro_policy.ppt Exchange Rates and Macroeconomic Policy]</ref><ref>[http://www.sciencedirect.com/science?_ob=ArticleURL&_udi=B6VGT-41WBFRG-1&_user=10&_rdoc=1&_fmt=&_orig=search&_sort=d&view=c&_acct=C000050221&_version=1&_urlVersion=0&_userid=10&md5=4e89075114dcdb58b503172ff1801bd2 Central Bank Intervention]</ref><ref>[http://www.federalreserve.gov/newsevents/speech/mishkin20071026a.htm Financial Instability and the Federal Reserve as a Liquidity Provider, by Frederic S. Mishkin]</ref>

For these reasons, a collapse in confidence in the [[solvency]] of the domestic banking system (and the central government) is one of the most complex and difficult policy issues any central government can face.<ref>[http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100008812/irelands-debt-servitude/ Ireland's Debt Servitude], Ambrose Evans-Pritchard, UK Telegraph</ref> If the central bank continues to try to save the current players in the banking sector by continually printing money and inflating its way out of the crisis, at some point hyperinflation suddenly appears, and has appeared many times in history.<ref>[http://mises.org/daily/4869 Can the Fed Become Insolvent?], Robert Murphy</ref><ref>[http://blog.mises.org/14626/quantitative-easing-explained/ Quantitative Easing Explained], YouTube video</ref>

Some commentators have observed that the media and the Fed have to constantly come up with new terms (such as "quantitative easing") to hide the fact that they are simply repeating the same failed policy of monetary inflation that corrupt sovereigns have deployed at the end of failed regimes many times over the millenia.<ref>[http://www.marketoracle.co.uk/Article25679.html Many Euphemisms for Money Creation], Thorsten Polleit</ref> This is also now referred to by some [[monetary reform]]ers and [[economist]]s as "socialism for the rich and capitalism for the poor", as many indebted [[consumers]] will still lose their [[house]]s and be declared [[bankrupt]] regardless whether or not the central bank intervenes to save marginal lenders who have been made [[insolvent]] through their mis-timing of the [[credit cycle]].<ref>[http://www.youtube.com/watch?v=ny6YI2JCP9Q&feature=player_embedded#at=147 Blood Starts Flowing on the Streets], Max Keiser interview with Gerald Celente</ref><ref>[http://www.rgemonitor.com/blog/roubini/228924/ Privatizing Profits and Socializing Losses, by Nouriel Roubini]</ref><ref>[http://www.beearly.com/pdfFiles/Satyajit%20Das.pdf Regulatory Debauchery by Satyajit Das]</ref> Future generations of innocent taxpayers may ultimately finance any [[bail out]] of reckless lenders, as the money used to fund any [[bail out]] will be funds diverted from the general revenue of the central government.<ref>[http://www.ft.com/cms/s/0/f4cf8426-654d-11dc-bf89-0000779fd2ac.html A run on the bank]</ref>

In times of crisis, some bankers still refer to [[Walter Bagehot]]'s 1873 commentary on monetary crises, ''Lombard Street'', in an attempt to gain insights into the way in which central bankers should revive illiquid banking systems.<ref>[http://www.prudentbear.com/index.php/thebearslairview?art_id=10513 The Evils of Crony Capitalism], Martin Hutchinson</ref><ref>[http://blogs.ft.com/economistsforum/2010/04/a-history-lesson-from-lombard-street-for-wall-street-in-2010/ History Lesson from Lombard Street], Roger Farmer, Ft.com</ref> However this old text may be outdated in circumstances where the community's debt limits have been reached and where the banking crisis arises from insolvency or environmental depletion rather than illiquidity.<ref>[http://www.youtube.com/watch?v=0KInB2rvgaY Eco Eco Disaster], Keiser Report</ref><ref name="Willie_Misdiagnosis" /><ref>[http://www.prudentbear.com/index.php/creditbubblebulletinview?art_id=10511 Favorable or Unfavorable], Doug Noland, Prudent Bear</ref> A prime example where aging demographics combined with reckless bank lending in a purely fiat debt-based monetary system resulted in economic problems which no amount of money printing or government spending could fix can be found in the case of the [[Japanese asset price bubble]].<ref>[http://www.economist.com/displaystory.cfm?story_id=10286992 The Japanese and American Bubbles: Been There, Done Some of That]</ref> Some believe the West will repeat the mistakes of the Japanese and the result will be worldwide monetary disorder and instability and economic decline.<ref>[http://dailyreckoning.com/destiny-is-demography/ Destiny is Demography], Bill Bonner</ref><ref>[http://www.economist.com/displaystory.cfm?story_id=10286992 The Japanese and American Bubbles: Been There, Done Some of That]</ref><ref>[http://www.prudentbear.com/index.php/creditbubblebulletinview?art_id=10508 Monetary Disorder], Doug Noland</ref><ref>[http://www.prudentbear.com/index.php/creditbubblebulletinview?art_id=10571 Crumbling Pillars], Doug Noland. Quote: "Whether it’s monetary or fiscal policy - at home or abroad – there seems to be confirmation everywhere that policymaking has become largely ineffectual and, increasingly, incapacitated. This is fundamental to my bearish thesis. With each passing market day it seems to take a greater leap of faith to believe that additional monetary and fiscal stimulus will ameliorate a sovereign debt crisis fomented by ultra-loose monetary and fiscal policies. Increasingly, it appears impossible for policies that fomented monetary instability to now somehow engender a return to market stability. Liquidity-challenged global markets are convulsing through a problematic period of de-risking and de-leveraging, and once such a process commences it basically has to run its course. Efforts to intervene in the marketplace, as we’ve been witnessing, are likely to beget only greater uncertainty and instability."</ref><ref>[http://www.youtube.com/watch?v=zbQq33iTsrw Rigged bank rates]</ref>

===Debt Saturation, Unstable Markets and the Keynesian Endpoint===

Keynesians often refer to Keynes' dictum "In the long run we are all dead" to justify artificially low interest rates and short-term stimulus spending by government to "kick start" a stalled economy where pre-existing private debt levels have caused spending to collapse. Tyler Cowen has responded to this Keynesian rejoinder with the following response:<ref>[http://www.nytimes.com/2011/03/06/business/06view.html The Fiscal Illusion], Tyler Cowan</ref>

{{quote|The famous Keynesian rejoinder, “In the long run we are all dead,” is less comforting when that long run comes into sight. Short-run planning is a hard carousel to stop, especially when there are frequent election cycles, but the federal government must act soon...

The technocratic Keynesian recommendation was to run deficits in bad times and surpluses in good times. But except for one stretch during the Clinton administration, this notion has been broken since the early 1980s. In the United States, at least, Keynesian economics has failed to find the necessary political institutions to enact and sustain a wise version of the theory.

Now that fiscal constraints are starting to bite, many politicians are afraid to reform or even to discuss changes in the largest problem areas...

Fiscal austerity may sometimes sound like a dogmatic religion, but fixed principles often help us do the right thing, especially when temptation beckons. Professor Buchanan argued that the real choice was between a religion of budget balance and a rule of illusion.

...the rigor of the numbers will soon sweep away the fiscal illusion. The only question is whether we will end the charade on our own terms or continue to play the fool.}}

Nassim Taleb posits that with increasing debt comes increasing fragility as markets end up standing on a "knife-edge" between precipitous currency devaluation due to money printing and widespread insolvency/depression due to slowing organic money supply growth.<ref>[http://www.zerohedge.com/news/2013-01-25/taleb-skin-game-and-his-disdain-public-intellectuals Nassim Taleb Interview on Anti-Fragile]</ref> It therefore becomes increasingly difficult for central banks to control volatility in heavily indebted world markets, until it ultimately becomes impossible to control.<ref>[http://www.zerohedge.com/news/2013-01-25/taleb-skin-game-and-his-disdain-public-intellectuals Nassim Taleb Interview on Anti-Fragile]</ref>

No current commentator predicts bankers, politicians or government employee unions will spontaneously reform themselves.<ref>[http://www.lewrockwell.com/lewrockwell-show/2011/03/27/193-gold-guns-and-getaway-plans/ Gerald Celente interview with Lew Rockwell]: Lew Rockwell: "When do you see social unrest coming to this country?" Gerald Celente: "I see more crime happening in this country, and social unrest at a much lower level. The people in this country don't have what it takes... This is a country of soccer mommies boys. We're prescription drug-addicted and we're junk food fat... Look at the way they dress, look at the way they talk, look how the Nation's become so Snooki-stupid."</ref> Noted commentator Bill Bonner and others have described politicians, welfare recipients, bankers and other tax beneficiaries as economic "zombies" obsessed with preserving their own coercively acquired incomes and unable to adapt to new economic realities. He has predicted that the "zombies" will continue to "steal" as much as possible and parasitically live off the productive efforts of others until the whole monetary system collapses.<ref>[http://dailyreckoning.com/the-coincidental-rise-of-oil-and-the-monetary-base/ The Coincidental Rise of Oil and the Monetary Base], Bill Bonner</ref><ref>[http://dailyreckoning.com/california-the-greece-of-the-us-financial-crisis/ California: The Greece of the U.S.], Bill Bonner</ref><ref>[http://dailyreckoning.com/zombies-born-of-government-spending/ Zombies Born of Government Spending], Bill Bonner</ref><ref>[http://www.zerohedge.com/article/not-program-salvage-greek-economy-its-program-pillage-bankruptcy Pillage Before Bankrupcty], Washington's Blog</ref> Some commentators have criticized so-called "zombie" bureaucracies such as the TSA as not only deadweights on the real productive economy, costing millions of tax dollars each year; their very existence hinders economic productivity.<ref>[http://mises.org/daily/5611/TSA-and-Unproductive-Labor TSA and Unproductive Labor], James E. Miller</ref> It is alleged that once these organizations are created and fed by government fiat, these "zombies" never die because there is no natural market mechanism to provide the necessary feedback signalling that they are unwanted by consumers. They grow only because they survive through government bureaucratic support and largesse - which comes from coercively acquired tax dollars or central bank produced fiat money. It is argued that the richest parasitic "zombies" (such as the CEOs and shareholders of the private security firms servicing the TSA's multi-million dollar government contracts) will continue to suck as much wealth from the productive economy as possible and then move on to the next host country with their real wealth converted into land, precious metals and jewels and other real assets.

The difficulty with any attempt at reform measures is that the "Ponzi" elements of finance are inextricably tied to pension funds and "real" elements in the economy, making it impossible to eliminate the "cancer" without damaging the wealth-creating structures as well.<ref>The term "cancer" is specifically mentioned in [http://www.pytheas.net/docs/Laissez-faire-and-policymakers.pdf Laissez-faire, investment banks and policy makers], Pytheas Market Focus, August 2009</ref><ref>[http://www.telegraph.co.uk/finance/comment/jeffrandall/8436123/We-must-call-the-bluff-of-the-big-bad-banks.html We must call the bluff of the big banks], Jeff Randall</ref><ref name="Repudiating the National Debt"/><ref>[http://www.youtube.com/watch?v=1zMv4Offm_8&feature=player_embedded#at=1341 Max Keiser Interview with Alex Jones]</ref><ref>[http://www.buildfreedom.com/tl/rape3.shtml Economic Rape of America]</ref><ref>[http://www.youtube.com/watch?v=zbQq33iTsrw Rigged bank rates]</ref> Commentator Max Keiser has also referred to "zombie" bankers as "The Walking Dead"<ref>[http://www.youtube.com/watch?v=23_S5etzSP0 Resident Evil Zombie Banks!]</ref> and has coined the term "Suicide Banking" to describe the paradoxical situation where virtually every politician and economist acknowledges that "Too Big To Fail" is a dysfunctional policy but no one has a viable solution, given that the banking system is "rigged to blow" if threatened.<ref>[http://www.youtube.com/watch?v=PCRXz5oOQVY&feature=player_embedded Suicide Bankers], Max Keiser</ref> He also refers to the current crisis as a fight to the death not between countries or ethnic groups or political ideologies but between future-oriented, prudent and conservative "Savers" on one side and present-focused, imprudent and overconsuming "Speculators" on the other.<ref>[http://www.youtube.com/watch?v=jzzIqi2sbQY&feature=player_embedded US flashing Orange]</ref>

Many non-mainstream financial commentators believe the U.S. and the E.U. will soon experience terminal financial crises, but there is vigorous on-going debate amongst numerous commentators regarding whether this terminal currency crisis will end in hyperinflation and currency destruction (making government bonds worthless) or repeated bouts of deflation and depression (making government bonds more valuable).<ref name="Landis_Reprieve" /><ref>[http://www.marketoracle.co.uk/Article28148.html How to Keep a Damaged Financial and Economic System Afloat?], Bob Chapman</ref><ref>[http://news.goldseek.com/GoldSeek/1305306000.php Winning in the Hyperinflation/Deflation War], Deepcaster LLC</ref><ref>[http://www.marketoracle.co.uk/Article27733.html Compound Inflation], John Mauldin</ref><ref>[http://www.lewrockwell.com/north/north973.html Rick Ackerman Defects], Gary North</ref><ref>[http://globaleconomicanalysis.blogspot.com/2011/04/no-miracle-cures-from-inflation.html Impossible to Inflate Out of this Mess], MISH</ref><ref>[http://globaleconomicanalysis.blogspot.com/2009/06/big-inflationist-scare.html The Big Inflationist Scare], MISH</ref><ref>[http://globaleconomicanalysis.blogspot.com/2010/09/debating-flat-earth-society-about.html Debating the Flat Earth Society About Hyperinflation], MISH</ref><ref>[http://globaleconomicanalysis.blogspot.com/2009/01/peter-schiff-was-wrong.html Peter Schiff Was Wrong], MISH</ref><ref>[http://www.marketoracle.co.uk/Article27726.html Deflation Threat is Still Alive], EWI</ref><ref>[http://www.marketoracle.co.uk/Article27791.html Can We Give The Hyperinflation Thing a Rest?], Mike Whitney</ref> Most - but not all - Austrian commentators now believe the denouement will inevitably result in hyperinflation and render the U.S. dollar near-worthless in real terms, as U.S. bond and dollar holders compete to offload excess holdings in the face of massive ongoing issuance.<ref>[http://www.marketoracle.co.uk/Article29393.html US Dollar Supply and Demand], Jim Willie CB</ref><ref>[http://fofoa.blogspot.com/2011/04/deflation-or-hyperinflation.html Deflation or Hyperinflation?], FOFOA</ref><ref>[http://maxkeiser.com/2011/04/25/ding-ding-ding-its-all-over-rick-ackerman-concedes-hes-been-wrong-and-joins-the-hyperinflationist-camp/ It's all over! Rick Ackerman Concedes!], Max Keiser</ref> Mike Shedlock and Antal E. Fekete are amongst a small group of deflationists who believe contracting credit will continue to have a deflationary impact on the economy, causing government bonds to become even more valuable over time.<ref>[http://globaleconomicanalysis.blogspot.com/2011/05/hyperinflation-nonsense-in-multiple.html Hyperinflation Nonsense], MISH</ref><ref>[http://globaleconomicanalysis.blogspot.com/2011/04/no-miracle-cures-from-inflation.html No Miracle Cures from Inflation], MISH</ref><ref>[http://www.julianmidwinter.com.au/ The Federal Reserve as an engine of deflation], Antal E. Fekete</ref><ref>[http://globaleconomicanalysis.blogspot.com.au/2012/08/preposterous-falsehoods-from-gary-north.html Falsehoods from Gary North], MISH</ref>

It should be noted that few hyperinflationists can explain the ''precise mechanism'' by which massive amounts of new credit money will be injected into the economy. There has been no detailed explanation from the hyperinflationists regarding how, with so few potential credit-worthy borrowers (including governments), the new money (via the issuance of new debt) will be injected into the economy in sufficient volume to trigger hyperinflation in the absence of extreme government policies (such Congress authorizing every citizen to be issued with $30,000 vouchers, or a civil war, or other natural catastrophe).<ref>[http://globaleconomicanalysis.blogspot.com/2011/09/bernankes-waterloo-midst-of.html Bernanke's Waterloo], Mike Shedlock</ref>

Gary North is one of the few Austrians who does not predict the extremes of either hyperinflation or deflationary depression, but rather expects a continuation of steady, moderate price inflation encouraged and controlled by the Federal Reserve, against a background of ongoing extreme boom-busts in the real economy and the slow but systemic impoverishment of the middle class.<ref>[http://lewrockwell.com/north/north1031.html Mass Inflation, Yes; Hyperinflation, No], Gary North</ref>

Austrian commentator Robert K. Landis believes there will be a combined deflationary/inflationary catastrophe.<ref>[http://www.goldensextant.com/SavingtheSystem.html Saving The System], Robert K. Landis</ref>

Leaving aside the debate between deflationists and hyperinflationists, and in stark contrast to the predictions of deflationary or hyperinflationary catastrophe from the Austrians, monetarist, Keynesian and neo-classical economists regard the current financial system as benign and the current financial distress as temporary and not structural in nature.<ref>[http://www.marketoracle.co.uk/Article35922.html Who do You Trust?], James Quinn</ref> Most advocate "tweaking" of government policy (such as temporary increases in government spending) to get us out of the current crisis. No mainstream economist identifies the problem as fundamental or structural and no mainstream economist advocates a return to full reserve banking, the gold standard or free banking. Indeed, most financial analysts still use the normal distribution - or "Bell Curve" - to represent the likely distribution of future returns in financial markets.<ref>[http://seekingalpha.com/article/163271-rethinking-alpha-and-beta Rethinking Alpha and Beta], Paul Amery</ref> This continues despite extensive research demonstrating that the normal distribution does not apply to financial market returns, which display so-called "fat tail" distributions, with much more volatlity at the extremes than the normal distribution would predict.<ref>[http://www.bearcave.com/bookrev/misbehavior_of_markets.html The Misbehavior of Markets], Ian Kaplan</ref> The Austrian view - that the economy will either slide into depression or hyperinflation under the stresses of the current debt-based monetary monetary system - may be supported by more recent analysis of actual financial market behavior under conditions of high debt and extreme stress.<ref>[http://mises.org/daily/5352/What-Mises-Can-Teach-the-Quants What Mises Can Teach the Quants], Daniel James Sanchez</ref><ref>[http://lewrockwell.com/north/north990.html The Next Financial Crisis], Gary North</ref><ref>[http://www.debtdeflation.com/blogs/2011/06/11/dude-where%E2%80%99s-my-recovery/ Where's My Recovery?], Steve Keen</ref> And recently even mainstream economists, such as senior IMF advisor Dr Robert Shapiro, now openly acknowledge that the inter-dependencies created by the issuance of Credit Default Swaps and other risk-related financial products by reckless under-capitalized banks has created a situation of extreme global financial vulnerability, where the world is only weeks away from a complete and total financial "meltdown".<ref>[http://maxkeiser.com/2011/10/07/imf-advisor-says-we-face-a-worldwide-banking-meltdown/ IMF Advisor Says We Face a Worldwide Banking Meltdown], BBC. Quote, Dr Robert Shapiro: "If they (EU governments) cannot address this in a credible way, I believe that in perhaps two to three weeks we will have a meltdown in sovereign debt which will produce a meltdown across the European banking system - we're not just talking about a relatively small Belgian bank - we're talking about the largest banks in the world - the largest banks in Germany, the largest banks in France - that will spread. It will spread to the United Kingdom - in part through sovereign debt problems in Ireland - it will spread ''everywhere'' because the global financial system is so inter-connected they are each counter...''all'' those banks are counter-parties to every significant bank in the United States and in Britain and in Japan and around the world! This would be a crisis that would be, in my view, more serious than the crisis in 2008."</ref> John Butler of Amphora has observed that "business cycles" have become "financial cycles" with central bank manipulation of markets, and these cycles have become increasingly violent and unstable, with shorter durations and increasing frequency.<ref>[http://maxkeiser.com/2013/05/16/kr445-keiser-report-sacred-dow/ Sacred Dow]</ref> To him, this signals the dying stages of a failed system, much like a spinning top slowing down and oscillating more frequently and more violently from side to side before coming to a sudden stop. According to John Butler, increases in stock prices are not a sign the economy is recovering, but is a sign of central bank-induced inflation - the first stages of currency collapse.<ref>[http://maxkeiser.com/2013/05/16/kr445-keiser-report-sacred-dow/ Sacred Dow]</ref>

Regardless whether the government chooses hyperinflation or periodic deflationary depression as the way out, throughout history, only two real alternatives occur in the midst of economic or financial crisis: ever greater centralization (often on a "higher level") or disintegration of the core power structures and (eventually) rejuvenation.<ref>[http://www.telegraph.co.uk/comment/columnists/janetdaley/8770696/The-European-dream-lies-in-ruins.html The European dream lies in ruins], Janet Daley, UK Telegraph</ref><ref>[http://www.zerohedge.com/article/greeces-ultimatum-bailout-bankers-or-loss-sovereignty Greece's Ultimatum], ZeroHedge</ref><ref>[http://www.lewrockwell.com/north/north966.html Wealth Through Decentralization], Gary North</ref><ref>[http://mises.org/store/Rollback-P10449.aspx ''Rollback''], Thomas Woods</ref><ref>[http://blog.mises.org/9321/crisis-and-leviathan/ Crisis and Leviathan], Robert Higgs</ref><ref>[http://mises.org/store/Money-Bank-Credit-and-Economic-Cycles-P290C0.aspx Money, Bank Credit and Economic Cycles], Jesus Huerta de Soto, Mises Institute ISBN: 978-1-933550-39-8</ref><ref>[http://mises.org/store/Meltdown-P557.aspx ''Meltdown''], Tom Woods, Regnery Press ISBN: 9781596985872</ref><ref>[http://mises.org/media/4014 The Economics of Legal Tender Laws], [[Jorg Guido Hulsmann]] (includes detailed commentary on centralization during crises)</ref><ref>[http://www.amazon.com/Warwolves-Iron-Cross-International-Relationships/dp/146358380X/ref=sr_1_33?ie=UTF8&qid=1316347713&sr=8-33 Warwolves of the Iron Cross], Veronica Kuzniar Clark</ref> Accordingly, many of the more extreme monetary reformers and [[conspiracy theorists]] anticipate repeated and ever more desperate attempts at ''higher-order centralization'',<ref>[http://www.telegraph.co.uk/comment/columnists/janetdaley/8770696/The-European-dream-lies-in-ruins.html The European dream lies in ruins], Janet Daley, UK Telegraph</ref><ref>[http://www.marketoracle.co.uk/Article27051.html A New World Currency?], Ellen Hodgson Brown</ref> as the existing co-ordinated state-based central bank architecture becomes discredited through repeated economic failure and environmental crises caused by the need for unsustainable exponential debt-driven economic "growth" within the current debt-based financial architecture.<ref>[http://www.zerohedge.com/article/guest-post-economic-abyss The Economic Abyss], Brandon Smith</ref> This centralization is anticipated to include the empowerment of the UN to increasingly intervene in the domestic political affairs of nations,<ref>[http://www.lewrockwell.com/rozeff/rozeff343.html World Government], Mike Rozeff</ref> the IMF and EU to increasingly intervene in the domestic financial affairs of member nations,<ref>[http://www.telegraph.co.uk/comment/columnists/janetdaley/8770696/The-European-dream-lies-in-ruins.html The European dream lies in ruins], Janet Daley, UK Telegraph</ref><ref>[http://www.zerohedge.com/article/greeces-ultimatum-bailout-bankers-or-loss-sovereignty Greece's Ultimatum], ZeroHedge</ref><ref>[http://globaleconomicanalysis.blogspot.com/2010/11/terms-of-enslavement-irish-citizens-say.html Terms of Enslavement], MISH</ref><ref>[http://globaleconomicanalysis.blogspot.com/2010/11/imf-ready-to-help-ireland-can-imf-help.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+MishsGlobalEconomicTrendAnalysis+%28Mish%27s+Global+Economic+Trend+Analysis%29 Can the IMF help anyone?], MISH</ref><ref>[http://www.telegraph.co.uk/finance/financialcrisis/8150137/Ireland-forced-to-take-EU-and-IMF-bail-out-package.html Ireland forced to take IMF bailout package], Telegraph</ref> and the declaration of [[martial law]] and the imposition of [[fascist]]-style restrictions on [[civil rights]]<ref>[http://www.zerohedge.com/article/guest-post-us-monetary-system-and-descent-fascism-interview-dr-edwin-vieira The U.S. Monetary System and Descent Into Fascism], Dr Edwin Vieir</ref><ref>[http://english.aljazeera.net/indepth/opinion/2011/04/201142612714539672.html Global capitalism and 21st cenury fascism], William I. Robinson</ref><ref>[http://www.lewrockwell.com/rep2/jesse-ventura-on-tsa-abusers.html Jesse Ventura on the TSA' Sexual Abusers]</ref> and [[freedom of speech]] by the political [[The Establishment|Establishment]] to physically protect it from [[anarchy]] or military [[coup]] when the [[bubble (economics)|bubble]] of debt completely bursts, through a precipitous currency crisis, debt-created [[Depression (economics)|depression]], environmental crisis or oil shortage.<ref>[http://www.marketoracle.co.uk/Article26605.html Population Reduction], Chris Kitze</ref><ref>[http://jsmineset.com/2011/02/24/in-the-news-today-791/ Collapse]</ref><ref>[http://www.lewrockwell.com/lewrockwell-show/2010/12/14/179-the-espionage-act-and-the-death-of-american-freedoms/ Death of American Freedoms], Naomi Wolf, LRC interview, Dec 14, 2010</ref><ref>[http://www.house.gov/paul/congrec/congrec2007/cr120507h.htm New security legislation threats freedoms]</ref><ref>[http://www.marketoracle.co.uk/Article26325.html Bank Credit Ends in Catastrophe], Richard Daughty, The Mogambo Guru</ref> Ultimately this is anticipated to yield either repressive world government<ref>[http://www.zerohedge.com/news/2013-01-31/guest-post-linchpin-lie-how-global-collapse-will-be-sold-masses The Linchpin Lie]</ref> or chaos (or most likely both), with a world central bank stationed in Basel, Switzerland.<ref>[http://www.zerohedge.com/news/2013-05-03/monarchs-money Monarchs of Money]</ref><ref>[http://www.youtube.com/watch?v=VMngK0t5WkY Max Keiser]</ref><ref>[http://www.marketoracle.co.uk/Article28533.html The Global Debt Crisis], Ellen Hodgson Brown</ref><ref>[http://www.marketoracle.co.uk/Article27051.html A New World Currency?], Ellen Hodgson Brown</ref><ref>[http://www.marketoracle.co.uk/Article27554.html Libya War All About Oil or Gold and Banking?], Ellen Hodgson Brown</ref><ref>[http://blog.mises.org/9321/crisis-and-leviathan/ Crisis and Leviathan], Robert Higgs</ref> During this transition period, some analysts and conspiracy theorists anticipate multiple wars to force governments into the BIS financial "net",<ref>[http://www.youtube.com/watch?v=VMngK0t5WkY Max Keiser]</ref><ref>[http://www.marketoracle.co.uk/Article28533.html The Global Debt Crisis], Ellen Hodgson Brown</ref><ref>[http://www.marketoracle.co.uk/Article27051.html A New World Currency?], Ellen Hodgson Brown</ref><ref>[http://www.marketoracle.co.uk/Article27554.html Libya Ware All About Oil or Gold and Banking?], Ellen Hodgson Brown</ref> impotent and counterproductive price controls,<ref>[http://globaleconomicanalysis.blogspot.com/2011/03/food-prices-rise-11-in-china-overall.html Chinese inflation], MISH</ref><ref>[http://www.lewrockwell.com/goyette/goyette18.1.html Too Late!], Charles Goyette</ref> repeated sell-offs of monopoly state assets in a desperate attempt to feed private domestic banks with steady, coercively acquired income to keep the value of government bonds collapsing,<ref>[http://globaleconomicanalysis.blogspot.com/2011/05/whos-bigger-socialist-president-obama.html Who's the Bigger Socialist?], MISH</ref> and then, once this attempt (to feed unsustainable compounding debt with any remaining basic infrastructure) destroys any remaining parts of the productive economy, there will be in the end coercively enforced rationing of basic essentials to ensure continued supply of food and oil to senior government officials, bankers and their associates amidst widespread general starvation and chaos,<ref>[http://www.technologyreview.com/blog/arxiv/27083/?p1=blogs Food prices and Riots]</ref><ref>[http://www.marketoracle.co.uk/Article26605.html Population Reduction], Chris Kitze</ref> as the coalescence of a corrupt banker-government coalition solidifies<ref>[http://www.zerohedge.com/news/2013-01-31/guest-post-linchpin-lie-how-global-collapse-will-be-sold-masses The Linchpin Lie]</ref><ref>[http://maxkeiser.com/2011/04/28/kr142-keiser-report-blind-cult-of-america/ Blind Cult of America]. Quote: Max Keiser: "Yes, it's beyond religious fervor. That's the point. It's become this echo chamber, cult-like 'America can't fail' which is very endemic when you see suicide cults. Remember Jim Jones. Remember him. The Kool Aid. He made the idea of drinking Kool Aid... he popularized that notion. Everyone committed suicide in Guyana. Or the Hail-Bot Comet Cult. Here you've got 300 million Americans who are worshiping this idea of 'American-style' Free Market Capitalism that doesn't exist. They support market manipulation on Wall Street and they're all gonna ''die'' as a result. Now that's less than 5% of the world's population. It is 25% of the world's garbage so the world will breathe a sigh of relief, but, as far as those living inside they don't really understand that they're being used as cult fodder." Stacy Herbert: "The equivalent of drinking the cyanide-laced Kool Aid would be purchasing a McMansion with a sub-prime mortgage. This is them committing suicide. It's the equivalent of drinking cyanide-laced Kool Aid." Max Keiser: "It's financial suicide. As we've talked about. Financialization of the economy has turned into this hybrid reality that combines political malfeasance with financial larceny and that's the combination between Obama's White House and Wall Street merging together into something even more insidious than fascism. It's a Klepto-F*@kingSh*tism. It's a... it's a Klepto-Sh*tism is the current political-financial school of thought in America today and it's not working. It's unsustainable."</ref> to eliminate potential dissent and ensure the forced elimination - by any means necessary - of any actual or potential competing [[currencies]] that could threaten the viability or legitimacy of the [[monopoly]] currency, which could include war against any country considering using any currency other than US dollars to price essential commodities such as oil <ref>[http://www.lewrockwell.com/holland/holland44.1.html Anglo-American Deception], Ron Holland</ref> and the compulsory confiscation of all privately-owned [[gold]] (gold being the ultimate reserve currency, still used by central banks as a universally accepted medium of exchange for the settlement of international debts).<ref>[http://mises.org/daily/5184/The-Crime-of-Private-Money The "Crime" of Private Money], Robert Murphy</ref><ref>[http://www.zerohedge.com/article/guest-post-thoughts-liberty-dollar-debacle Liberty Dollar], ZeroHedge.com</ref><ref>[http://blog.mises.org/14795/the-gold-clause-cases-and-constitutional-necessity/ Gold Clause Cases]</ref><ref>[http://news.goldseek.com/GoldSeek/1196605589.php America's Trade Debts Lead to a Likely Gold Confiscation]</ref><ref>[http://www.libertydollar.org/ld/legal/raid.htm FBI Raids Liberty Dollar]</ref><ref>[http://www.lewrockwell.com/rothbard/solution.html The Solution]</ref><ref>[http://prudentinvestor.blogspot.com/2007/09/us-mint-suspends-gold-coin-sales-due-to.html US Mint Suspends Gold Coin Sales]</ref><ref>[http://www.swissamerica.com/article.php?art=06-2004/200406140537f.txt Why a Gold Standard Now?]</ref><ref>[http://www.lewrockwell.com/blog/lewrw/archives/73468.html Bank of America an arm of US government policy]</ref><ref>[http://www.marketoracle.co.uk/Article26325.html Bank Credit Ends in Catastrophe], Richard Daughty, The Mogambo Guru</ref><ref>[http://www.sovereignman.com/expat/bernanke-terrorist Bernanke is the domestic terrorist], Sovereign Man</ref><ref>[http://www.marketoracle.co.uk/Article28225.html DSK Was Trying to Torpedo the Dollar], Mike Whitney</ref>

Some have speculated that the overthrow and attempted assassination of Col. Gaddafi and his family in 2011 Libyan "civil war" was triggered by Col. Gaddafi's open (and unwise) attempt to price Libya's oil in gold, which is the reaction many would expect for a country that "dared" to price an essential commodity in anything other than a Western paper currency.<ref>[http://www.youtube.com/watch?v=GuqZfaj34nc&feature=player_embedded#! Gaddafi: Gold for Oil?], RTTV</ref><ref>[http://www.youtube.com/watch?v=8lnslMWhOTw&list=SPC3F29DDAA1BABFCF&index=194 Welcome Home German Gold], Max Keiser</ref>

There have been many [[financial crisis|monetary crises]] throughout history.<ref>[http://www.zerohedge.com/news/2013-02-26/trust-me-time-different Trust Me This Time Is Different]</ref><ref>[http://www.delanion.com/main/dom.htm Fiat Money Inflation in France], Gold Money video featuring Max Keiser, James Turk and Pierre Jovanovic</ref><ref>[http://www.delanion.com/main/dom.htm Dying of Money], Jens O. Parsson</ref><ref>[http://www.delanion.com/main/dom.htm Dying of Money], Jens O. Parsson</ref><ref name="Bonner_Swan">[http://www.lewrockwell.com/bonner/bonner454.html Revolution in Egypt and Black Swans], Bill Bonner, February 15, 2011.</ref><ref>[http://news.goldseek.com/GoldSeek/1297199137.php China Inflation and Gold], Darryl Robert Schoon</ref><ref>[http://mises.org/store/Early-Speculative-Bubbles-P578.aspx Early Speculative Bubbles and Increases in the Money Supply], Doug French, Mises Institute ISBN: 978-1-933550-44-2</ref><ref>[http://dailyreckoning.com/a-word-of-advice-to-financial-authorities/ Advice to Financial Authorities], Bill Bonner</ref><ref>[http://www.marketoracle.co.uk/Article26325.html Bank Credit Ends in Catastrophe], Richard Daughty, The Mogambo Guru</ref> Some commentators have noted that our present system and the strategies attempted by governments to reflate the economy closely resemble the failed theories of John Law and the Mississippi bubble of the early 18th century.<ref>[http://www.economist.com/node/14215012 Law of easy money], ''The Economist''</ref> There are a number of standard warning signs of impending depression or hyperinflation caused by a complete breakdown of trust in any [[monetary system]].<ref>[http://mises.org/store/Product.aspx?ProductId=435 Fiat Money Inflation in France], Andrew Dickson White, Mises Institute</ref><ref>[http://www.marketoracle.co.uk/Article25313.html Asset Speculation and Capital Destruction], Jim Willie</ref><ref>[http://www.zerohedge.com/article/guest-post-economic-abyss The Economic Abyss], Brandon Smith</ref><ref>[http://lewrockwell.com/orig12/martenson8.1.1.html Argentina: A Case Study], Chris Martenson and FerFAL</ref> Just prior to the complete collapse of the [[pyramid scheme]] of public and private debt, the economic system tends to feed on itself, and in the past, where debt-created [[Depression (economics)|depression]]s or periods of [[hyperinflation]] have occurred in [[Europe]],<ref name="Bonner_Swan" /> the [[U.S.]] and [[China]], there has been a sustained spike in predatory economic behavior, as the heavily indebted central government and producers are forced to find more extreme (previously considered unethical) methods to extract any remaining wealth from increasingly desperate and impoverished [[consumers]], who are either unwilling or unable to go into further debt without forceful coercion.<ref>[http://www.zerohedge.com/article/guest-post-ethics-mortgage-loan-default The Ethics of Mortgage Loan Default], Greg Lemelson</ref><ref name="Bonner_Swan" /><ref name="http">{{cite book |last= Widdig |first= Bernd |title= Culture and Inflation in Weimar Germany |url= http://books.google.com/books/ucpress?id=kvKAATycUzIC |accessdate= 2007-12-16 |year= 2001 |publisher= University of California
Press |isbn= 0520222903 }}</ref><ref>[http://mises.org/daily/3569 John Law and the Invention of Modern Finance], Doug French (Mises.org)</ref><ref>[http://mises.org/daily/1690 The Saga of John Law and Richard Cantillon], Sean Corrigan (Mises.org)</ref> [[Long-term]] investment and sustained [[capital investment]] are almost impossible in this environment because the "measuring stick" of [[return on investment]] (the real value of [[money]]) is so uncertain at times of debt-induced [[credit crunch]], depression or hyperinflation.<ref>[http://www.marketoracle.co.uk/Article25313.html Asset Speculation and Capital Destruction], Jim Willie</ref>

As potential new [[borrower]]s and international financiers are scared away from participating in the [[pyramid scheme]] of debt and borrowing further, the [[monetary system]] seizes up, starved of the fresh injections of [[debt money]] it needs for its survival, thereby precipitating economic [[anarchy]],<ref name="Bonner_Swan" /><ref>[http://www.zerohedge.com/article/guest-post-economic-abyss The Economic Abyss], Brandon Smith</ref> widespread [[lawlessness]]<ref name="Bonner_Swan" /> and [[insolvency]] of the monetary and banking system.<ref>[http://www.youtube.com/watch?v=FPxYg6mgGpE Inflation is There], Peter Schiff</ref><ref>[http://www.oftwominds.com/blognov07/empire-debt1.html Empire of Debt]</ref><ref name="Landis_Reprieve" /><ref>[http://www.marketoracle.co.uk/Article25313.html Asset Speculation and Capital Destruction], Jim Willie</ref><ref name="Bonner_Swan" /> Some have described the moment when governments cannot borrow any more from banks to keep up the growth in debt money as the "Keynesian Endpoint" or "Keynesian Endgame" or point of "Debt Saturation" - which is the point in time when ''in extremis ''"emergency" measures by the government to kick-start the economy by increasing total gross debt have no lasting positive effect on GDP.<ref>[http://www.zerohedge.com/article/guest-post-economic-death-spiral-has-been-triggered The Economic Death Spiral], Gordon T. Long</ref><ref>[http://www.zerohedge.com/article/charting-ten-year-prelude-keynesian-endgame Keynesian Endgame], ZeroHedge</ref><ref>[http://en.wikipedia.org/wiki/Keynesian_endpoint Keynesian Endpoint], Wikipedia definition</ref><ref>[http://www.marketoracle.co.uk/Article27801.html U.S. Debt Saturation and Money Illusion], Gordon T. Long</ref> Antal E. Fekete identifies this "crisis" point as the point when the marginal increase in total gross debt has no positive marginal effect on GDP.<ref>[http://www.professorfekete.com/articles/AEFGotterdammerung.pdf Gotterdammerung], Antal E. Fekete</ref> According to Professor Fekete, once the marginal productivity of debt turns negative, a disastrous depression is inevitable.<ref>[http://www.professorfekete.com/articles/AEFGotterdammerung.pdf Gotterdammerung], Antal E. Fekete</ref>

Recent studies have indicated that debt turns toxic at between 80 and 100 percent of GDP. Beyond this, further increases in debt reduce GDP rather than stimulate it.<ref>[http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100011744/when-debt-levels-turn-cancerous/ When Debt Levels Turn Cancerous], Ambrose Evans-Pritchard</ref>

This final denouement is triggered when [[borrower]]s cannot be found to buy depreciating, already-indebted, assets, and international financiers reduce lending as they experience losses on pre-existing loans either through asset or currency [[depreciation]].<ref>[http://www.youtube.com/watch?v=FPxYg6mgGpE Inflation is There], Peter Schiff</ref> Some analysts predict that the [[monetary system]] will seize up due to a [[deflationary]] depression<ref>[http://www.zerohedge.com/article/guest-post-heres-setup-con-decade The Con of the Decade], ZeroHedge</ref> or a sustained period of [[stagflation]]ary hyperinflation resulting in a "final and total catastrophe of our fiat monetary system."<ref name="Landis_Reprieve" /><ref>[http://www.marketoracle.co.uk/Article25313.html Asset Speculation and Capital Destruction], Jim Willie</ref><ref>[http://www.youtube.com/watch?v=FPxYg6mgGpE Inflation is There], Peter Schiff</ref><ref>[http://www.marketoracle.co.uk/Article27402.html Deflationists Blind to Inflationary Storm], Jim Willie</ref><ref>[http://www.marketoracle.co.uk/Article27466.html Compounding Debt]</ref>

Examples of debt and monetary crises can often be found after failed wars, when international financiers realize the heavily indebted [[government]] they funded will not gain the resources it planned to seize as a result of the waging of aggressive war. When this pay-off does not materialize, the losing government is left with the debt of war without the ability to offset this government debt through the imposition of reparations on the defeated nation and the acquisition of the defeated state's resources, thereby boosting the victorious state's GDP and tax revenues. This sudden monetary collapse occurred to [[Germany]] after the [[First World War]] and [[Japan]] after the [[Second World War]].

Whatever the trigger, the key warning sign of any impending monetary crisis and economic [[anarchy]] is a sudden [[currency crisis]], or a sudden spike in domestic interest rates, or a sudden [[credit crunch]] or the announcement of a bank holiday.<ref>[http://mises.org/daily/6400/Lessons-from-Cyprus Lessons from Cyprus]</ref><ref name="Landis_Reprieve" /> Early warning signs that the [[private banks]] themselves are aware of an impending breakdown in the [[solvency]] of the [[financial system]] would be any combination of some or all the following: a spike in the [[oil]] price (which is an internationally accepted, inherently limited, store of value, and therefore can act as a modern form of [[hard currency]], oil sometimes being referred to as "black gold"), "backwardation" in [[gold]],<ref>[http://www.zerohedge.com/news/2013-02-22/gold-and-potential-dollar-endgame-part-3-backwardation-and-gold Gold and the Potential Dollar Endgame]</ref><ref>[http://www.minyanville.com/businessmarkets/articles/gold-spot-price-gold-prices-gold/5/10/2011/id/34441?camp=syndication&medium=portals&from=yahoo Permanent Gold Backwardation: Why a "Crack Up Boom" Is Inevitable], Keith Weiner</ref> and [[silver]]<ref>[http://www.youtube.com/watch?v=021yEhjPDa0&feature=player_embedded#at=826 $400 Ounce Silver, $8000 Ounce Gold], James Turk</ref><ref>[http://www.youtube.com/watch?v=FPxYg6mgGpE Inflation is There], Peter Schiff</ref> and sudden price spikes in other stable, non-perishable, inherently limited [[natural resources]] essential for non-discretionary industrial production;<ref>[http://www.marketoracle.co.uk/Article25313.html Asset Speculation and Capital Destruction], Jim Willie</ref> a spike in the [[futures contract]]s for vital agricultural [[commodities]]<ref>[http://www.marketwatch.com/story/fed-dictator-bernanke-needs-to-be-toppled-2011-02-15 Fed dictator Bernanke needs to be toppled], Paul B. Farrell</ref><ref>January 27, 2011 – ''Financial Times'' (Javier Blas and Chris Giles): “Governments across the developing world are stockpiling food staples in an attempt to contain panic buying, inflation and social unrest. But the hoarding is driving agricultural commodity prices even higher. The cost of wheat, the world’s most important staple, reached a fresh two-and-a-half-year high on Thursday, after countries from Algeria to Saudi Arabia announced extraordinary purchases. High food prices have been a contributing factor to the recent wave of social unrest across North Africa and the Middle East. In Algeria earlier this month, young rioters chanted ‘Bring us sugar!’ The cost of the sweetener in the wholesale market is at its highest in 30 years. Earlier this week, Algeria bought 800,000 tonnes of wheat – much more than usual – and Saudi Arabia announced plans to double the size of its wheat stockpile. Bangladesh and Indonesia joined the rush on Thursday, placing extraordinary on rice orders.”</ref> such as [[sugar]],<ref>[http://www.bloomberg.com/news/2010-12-15/portugal-tries-to-prevent-sugar-hoarding-amid-shortage-ft-says.html 2010 Portugal Sugar Crisis]</ref> [[corn]], [[wheat]], [[soybean]]s and [[rice]], as investors realize the debt-based monetary system has squeezed supplies of [[arable land]];<ref>[http://webofdebt.wordpress.com/2011/02/03/the-egyptian-tinderbox-how-banks-and-investors-are-starving-the-third-world/#more-1052 Banks and investors are starving the Third World], Ellen Hodgson Brown</ref><ref>[http://www.preparednesspro.com/blog/food-shortage-series-part-1/ Food Shortage Series],Kellene Bishop</ref><ref>[http://www.smh.com.au/environment/world-hungers-for-more-food-20110402-1csbh.html World hungers for more food], Sydney Morning Herald,</ref> a sudden flight of money ''to'' [[Treasury bills]] and/or a sudden spike in the [[interest rate]] differential between short-term [[Treasury bills]] and asset-backed corporate paper (or a sudden spike in the [[LIBOR]] rate in [[London]])<ref name="Landis_Reprieve" /><ref>[http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/12/03/cnrates103.xml&CMP=ILC-mostviewedbox Pleas for rate cut as interbank loans dive]</ref> - and then, in the very late stages of a credit crisis, a sudden and disorderly flight of money ''away from'' government bonds and a "shock" or "panic" collapse in government bond prices, as banks perceive that some governments will ultimately find it ''impossible'' to pay interest on their debt from coercively acquired taxes.<ref>[http://www.youtube.com/watch?v=SgNLTb58K_Y S&P Rating on US Sovereign Debt not Low Enough], Peter Schiff</ref><ref>[http://www.telegraph.co.uk/finance/economics/8190059/Global-bond-rout-deepens-on-US-fiscal-worries.html Global bond rout], Ambrose Evans-Pritchard, UK Telegraph</ref><ref>[http://www.prudentbear.com/index.php/thebearslairview?art_id=10480 When Will The U.S. Become Greece?], Michael Hutchinson</ref>

Shortly thereafter, some [[monetary reform]]ers predict that there would be desperate, but ultimately futile [[central bank]] intervention involving massive, repeated bouts of "quantitative easing",<ref>[http://www.zerohedge.com/article/did-fed-its-stealthy-synthetic-bet-keep-yields-low-become-next-aig Doubling Down], ZeroHedge</ref> then a [[currency crisis]],<ref>[http://www.zerohedge.com/article/jim-grant-inflation-there-will-be-lot-it-suddenly-because-our-interest-rate-structure-beyond Jim Grant on Inflation], ZeroHedge</ref> then a panic run on a number of marginal, [[insolvent]] [[banks]] and [[hedge funds]] as desperate wealthy investors try to get [[cash]] out before the [[pyramid scheme]]<ref>[http://www.youtube.com/watch?v=FPxYg6mgGpE Inflation is There], Peter Schiff</ref> collapses to invest in inherently limited, non-perishable, in-demand commodities such as [[oil]] and [[gold]]<ref>[http://www.professorfekete.com/articles/AEFAmericanBasesGermanyGoldBasis.pdf The Gold Basis], Antal E Fekete]</ref><ref>[http://www.zerohedge.com/article/golden-tipping-point-university-texas-takes-delivery-1-billion-physical-gold A Golden Tipping Point], ZeroHedge</ref><ref>[http://www.youtube.com/watch?v=FPxYg6mgGpE Inflation is There], Peter Schiff</ref><ref>[http://www.marketoracle.co.uk/Article25313.html Asset Speculation and Capital Destruction], Jim Willie</ref> (and undeveloped agricultural and industrial [[land]] in areas of the world with strong [[economic growth]]),<ref>[http://www.nytimes.com/2011/03/04/business/04farms.html?_r=1&hp Price of Farmland] NYTimes</ref> followed by a [[recession]] or [[depression]] in the broader heavily indebted economy as [[money supply|credit]] contracts but base money continues to rise exponentially.<ref>[http://www.marketoracle.co.uk/Article27172.html Why QE has NOT brought back inflation], EWI</ref><ref name="Landis_Reprieve" /><ref>[http://www.marketoracle.co.uk/Article25313.html Asset Speculation and Capital Destruction], Jim Willie</ref><ref>[http://www.newyorkfed.org/research/staff_reports/sr291.pdf Hedge Funds, Financial Intermediation and Systemic Risk]</ref><ref>[http://jsmineset.com/2011/02/24/in-the-news-today-791/ Collapse]</ref><ref>[http://www.marketoracle.co.uk/Article27596.html US Accelerating Inflation Mega-Trend], Nadeem Walayat</ref>

Historically, during periods of monetary disorder, a predator-prey mentality generally grips society, with parasitic or predatory activity being witnessed, eating away at the last vestiges of the middle class.<ref>[http://www.goldonomic.com/When%20Money%20Dies.pdf When Money Dies], Adam Fergusson</ref> In such circumstances the following activities continue to be profitable and proliferate during monetary disorder: international banking and financial services to the wealthy elite, to assist in secreting their assets outside the jurisdiction; drug trafficking and distribution to ease the psychological stress on those slipping down the social ladder into poverty and homelessness; security and protection services to the wealthy; entertainment services to the wealthy, including gambling, prostitution (male, female and child) and "exclusive" nightclubs and bars servicing the wealthy; luxury imported goods and services; military and defense contracting and procurement (as a form of high-level security services for elite government employees), propaganda and media services defending and glorifying and legitimizing the State; and all forms of coercive government activity generally (as the tendency towards fascist-style controls feeds on itself in a positive feedback loop around a triangle of increasing government employee numbers scared away from the shrinking private sector, a banking industry supporting government jobs and big business and defense contracting supporting and feeding both).<ref>[http://www.zerohedge.com/news/2013-05-22/greek-prostitution-soars-150-youth-unempoyment-hits-75-some-areas Greek Prostitution Soars By 150%]</ref><ref>[http://www.goldonomic.com/When%20Money%20Dies.pdf When Money Dies], Adam Fergusson</ref><ref>[http://books.google.com.au/books?id=kvKAATycUzIC&pg=PA197&lpg=PA197&dq=prostitution+modernism+weimar+germany+hyperinflation&source=bl&ots=DaJiHnllDu&sig=Acfme5660DBUC6Xw5XLdoke5IE4&hl=en&ei=fOB1Tor1BsXRmAWSoYn0DA&sa=X&oi=book_result&ct=result&resnum=5&ved=0CD4Q6AEwBDgK#v=onepage&q&f=false Culture and Inflation in Weimar Germany], Bernd Widdig</ref><ref>[http://www.businessinsider.com/finance-guy-in-london-explains-how-to-order-cocaine-from-a-restaurant-2011-9#ixzz1Y2MQUyzJ London Banker explains how to order cocaine from London restaurant]</ref><ref>[http://www.alternet.org/story/152446/inside_the_trillion-dollar_underground_economy_keeping_many_americans_%28barely%29_afloat_in_desperate_times?page=entire Inside the Underground Economy]</ref>

It should be noted that in 2011 banks started paying police directly, presumably to ensure protection from the public should widespread protests commence against their alleged [[embezzlement]] activities.<ref>[http://lewrockwell.com/wenzel/wenzel132.html Banksters Running Scared]</ref>

In 2010 Ireland and Greece experienced similar financial crises along the lines described above and many financial commentators and politicians expect more countries to go through the same debt crisis.<ref>[http://globaleconomicanalysis.blogspot.com/2010/12/video-fire-bombs-stones-fly-in-greek.html Greek protests]</ref><ref>[http://www.youtube.com/watch?v=2gm9q8uabTs "Who the Hell do you think you people are?"], Nigel Farage, UKIP leader</ref><ref>[http://www.marketoracle.co.uk/Article25313.html Asset Speculation and Capital Destruction], Jim Willie</ref> In 2011, Tunisia experienced a financial and political crisis that was almost identical to those already experienced on the poorer European periphery, except that in this case the pre-existing political establishment quickly fled the country in fear for their safety - with some allegations that the wife of the deposed leader, Leila Trabelsi, ordered the country's central bank to transfer 1.5 tonnes of [[gold]] to Zine El Abidine Ben Ali and his family.<ref>[http://www.marketoracle.co.uk/Article25636.html We are all Tunisians], Yvonne Ridley</ref><ref>[http://www.heraldsun.com.au/news/breaking-news/tunisia-missing-15-tonnes-of-gold/story-e6frf7jx-1225992107457 Tunisia missing 1.5 tonnes of gold], Herald Sun</ref> The Egyptian uprising resulted in Hosni Mubarek fleeing after desperate attempts were made by him and his associates to preserve his family's wealth and power.<ref>[http://news.yahoo.com/s/ap/20110212/ap_on_re_mi_ea/ml_egypt_mubarak_s_final_hours Mubarak's final hours], Associated Press</ref> Several newspapers have reported that, once again, appropriating the nation's gold reserves was a major priority for the fallen leader.<ref>[http://www.smh.com.au/world/mubaraks-lastminute-rush-to-hide-his-billions-20110213-1as1c.html Mubarak's Rush to Hide Billions], SMH</ref> Following the overthrow of the ruling elites in Tunisia and Egypt, other North African countries have experienced similar uprisings - all attributable to higher food prices, according to some noted commentators,<ref>[http://www.telegraph.co.uk/finance/economics/8492078/How-the-Fed-triggered-the-Arab-Spring-uprisings-in-two-easy-graphs.html How the Fed triggered the Arab Spring uprisings], Andrew Lilico</ref> who have accused Fed Chairman Ben Bernanke of literally having "blood on his hands" due to the encouragement of food price inflation via sustained inflationary loose-monetary policies.<ref>[http://globaleconomicanalysis.blogspot.com/2011/01/blood-on-bernankes-hands-riots-in-egypt.html Blood on Bernanke's Hands], MISH</ref><ref>[http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2011/4/6_Marc_Faber_-_Mr._Bernanke_is_a_Murderer_of_the_Middle_Class.html Marc Faber calls Mr Bernanke a Murderer of the Middle Class], King World News</ref><ref>[http://www.youtube.com/watch?v=V3NdUU1wWa4&feature=player_embedded#at=89 Max Keiser - Bernanke is a Murderer]</ref><ref>[http://dailyreckoning.com/lessons-from-egypt-for-the-american-people/ Lessons from Egypt], Charles Kadlec</ref><ref>[http://www.marketwatch.com/story/fed-dictator-bernanke-needs-to-be-toppled-2011-02-15 Fed dictator Bernanke needs to be toppled], Paul B. Farrell</ref><ref>[http://mises.org/daily/5050/QE2-Fuels-a-Global-Fury QE2 Fuels a Global Fury], Mark Thornton</ref><ref>[http://www.zerohedge.com/article/bernanke-blame-rising-global-revolutionary-wave?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+zerohedge%2Ffeed+%28zero+hedge+-+on+a+long+enough+timeline%2C+the+survival+rate+for+everyone+drops+to+zero%29 Is Bernanke To Blame?], Tyler Durden, ZeroHedge</ref> The central banker has denied that his inflationary loose-monetary policies have contributed to food inflation and Chicago Fed President Charles Evans has called for ''even more'' quantitative easing and inflation as a way out of the on-going crisis, despite previous attempts having failed to stimulate the economy.<ref>[http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/8302111/Fed-chief-Ben-Bernanke-denies-US-policy-behind-record-global-food-prices.html Ben Bernanke Denies US Policy Behind Food Price Inflation], UK Telegraph, 3 February 2011</ref><ref>[http://www.zerohedge.com/news/evans-goes-full-qetard-tells-hilsenrath-fed-needs-do-much-more-easing Chuckie Evans Goes Full QEtard]</ref> Implicit in Mr Bernanke's and Mr Evan's argument is the assumption that the central bank can create "good" inflation in some markets and avoid "bad" inflation in others. This alleged central bank power to direct good inflation and abate bad inflation is derided by a number of commentators.<ref>[http://www.youtube.com/watch?v=V3NdUU1wWa4&feature=player_embedded#at=89 Max Keiser - Bernanke is a Murderer]</ref><ref>[http://globaleconomicanalysis.blogspot.com/2011/01/blood-on-bernankes-hands-riots-in-egypt.html Blood on Bernanke's Hands], MISH</ref><ref>[http://dailyreckoning.com/lessons-from-egypt-for-the-american-people/ Lessons from Egypt], Charles Kadlec</ref><ref>[http://www.marketwatch.com/story/fed-dictator-bernanke-needs-to-be-toppled-2011-02-15 Fed dictator Bernanke needs to be toppled], Paul B. Farrell</ref><ref>[http://www.zerohedge.com/article/bernanke-blame-rising-global-revolutionary-wave?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+zerohedge%2Ffeed+%28zero+hedge+-+on+a+long+enough+timeline%2C+the+survival+rate+for+everyone+drops+to+zero%29 Is Bernanke To Blame?], Tyler Durden, ZeroHedge</ref><ref>[http://www.marketoracle.co.uk/Article28587.html QE2 Unmitigated Failure], James Quinn</ref><ref>[http://www.marketoracle.co.uk/Article28998.html The Great Misdiagnosis], Jim Willie CB</ref>

Noted British ''Telegraph'' commentator Ambrose Evans-Pritchard has called these the first Malthusian "Food Revolutions" of the modern era, as "agflation" causes political instability on the periphery of major economies worldwide - particularly those countries that have already denuded their agricultural base and have to import grain and other foods to survive.<ref>[http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/8291470/Egypt-and-Tunisia-usher-in-the-new-era-of-global-food-revolutions.html A New Era of Food Revolutions], Ambrose Evans-Pritchard</ref><ref>[http://jsmineset.com/2011/02/24/in-the-news-today-791/ Collapse]</ref>

It is also reported that very complex, delicate negotiations are taking place between debtor and creditor nations to swap government bonds with gold at prices far in excess of the declared "market price" of gold.<ref>[http://www.marketoracle.co.uk/Article25878.html China Buys European Gold], Jim Willie</ref> These so-called "off-market" deals - and possible diversions of government-owned gold to corrupt bankers and political leaders - are signs the Keynesian Endpoint has arrived and the politicians and bankers recognize they have lost control of the economic system and must focus on saving themselves.<ref>[http://lewrockwell.com/wenzel/wenzel113.html Fort Knox Gold], Robert Wenzel</ref><ref>[http://www.marketoracle.co.uk/Article25878.html China Buys European Gold], Jim Willie</ref> Max Keiser reports that it appears powerful nations will negotiate repatriation of their gold and smaller nations will either have to accept their gold is lost or face war if they attempt to repatriate their own gold home.<ref>[http://www.youtube.com/watch?v=8lnslMWhOTw&list=SPC3F29DDAA1BABFCF&index=194 Welcome Home German Gold], Max Keiser</ref> Germany and other countries have started to slowly repatriate their gold in anticipation that gold may not be available at any price in future.<ref>[http://www.lewrockwell.com/spl5/fed-short-germanys-gold.html What if the Fed is Short Germany's Gold?]</ref><ref>[http://lewrockwell.com/thomas-jeff/thomas-jeff16.1.html The Disappearing Gold]</ref>

Finally, it should be noted that, with the collapse of Tsarist Russia, the establishment of the fifth and final central bank of the United States, the destruction of the fiat-issuing fascist regimes in Italy, Germany and Japan post-WWII, and the collapse of communism in the 1990s, there no longer exists any major economy where the banking system is fully government-owned or has any strictly enforceable social responsibilities beyond pure profit motive. All major world economies have now adopted essentially the same monetary system, with profit-driven private banks (government-licensed institutions legally permitted to engage in unlimited credit creation) able to pocket profits during upswings and socialize losses during downswings by use of central bank asset swaps. If critics are correct that all such systems are doomed to severe boom-bust cycles because of excessive expansion of speculative credit and endemic [[moral hazard]], it is to be expected that all major economies will also experience essentially the same kind of environmental and food crises, and even allegedly "strong" economies such as China will experience severe economic downturns at some stage.<ref>[http://mises.org/daily/5070/Bust-Looms-As-China-Booms Bust Looms], Markus Bergstrom</ref><ref>[http://globaleconomicanalysis.blogspot.com/2011/03/bloodstained-property-map-and-trampled.html Bloodstained Property Map], MISH</ref> However, equally, if critics are correct that fractional reserve banking, excessive credit expansion and artificially low interest rates are at the root of all financial crises, then higher reserve ratios and capital requirements for domestic banks (or the existence of heavily controlled nationalized banks) should reduce the severity of economic crises in those economies with higher reserve requirements for their own banks.<ref>[http://www.bloomberg.com/news/2011-02-18/china-increases-banks-reserve-ratio-for-second-time-to-curb-property-boom.html China increases bank reserves to curb inflation], Bloomberg</ref><ref>[http://video.ft.com/ Lex's John Authers and Richard Stovin-Bradford discuss how to regulate banks better and how to handle those that are just too big to fail]</ref>

==Potential solutions==
Many consider it too late to reform the financial system.<ref>[http://www.zerohedge.com/news/2013-05-25/bill-black-our-system-so-flawed-fraud-mathematically-guaranteed Fraud is Guaranteed], Bill Black</ref><ref>[http://lewrockwell.com/stockman/stockman19.1.html A Review of The Great Deformation]</ref><ref>[http://matterhornassetmanagement.com/2013/03/18/get-your-assets-out-of-the-banks-now/ Get Your Assets Out of the Banks - NOW], Egon von Greyerz</ref><ref>[http://news.goldseek.com/LewRockwell/1306767600.php Is Greece the Future of America?], Mike Rozeff</ref><ref>[http://www.marketoracle.co.uk/Article27739.html Financial Slaughterhouse], Ashvin_Pandurangi</ref><ref>[http://www.marketoracle.co.uk/Article27764.html The Big QE2 Shakedown], Mike Whitney</ref><ref>[http://www.youtube.com/watch?v=-GmBoJ7qHYg&feature=player_embedded Simon Johnson INET]</ref><ref>[http://www.guardian.co.uk/business/2010/sep/14/banking-reforms-too-little-too-late Too Little Too Late], UK Guardian, 14 Sept 2010</ref><ref>[http://www.marketoracle.co.uk/Article27583.html Fed Reckoning Day Realities for Investor Pains and Gains], Deepcaster LLC</ref><ref>[http://maxkeiser.com/2013/02/02/kr401-keiser-report-fake-it-til-you-make-it-economy/ Fake It Till You Make It]</ref><ref>[http://www.marketoracle.co.uk/Article39037.html Fiat Currency Witches Brew], Ty Andros</ref> There is now so much debt in the system that the reduction in money supply growth necessary to curb [[malinvestment]] and financial bubbles would only result in financial crises and mass bankruptcies and, ultimately, business assets being transferred to the banking system. This is obvious when one observes that with no debt there is no money. With a slowing economy and reduction in money supply all assets subject to debt would inevitably be flushed through the banking system as a mathematical necessity.<ref>[http://www.moneyasdebt.net/ Money as Debt]</ref> Therefore virtually all assets will ultimately end up under the control or ownership the banking system if the present system is allowed to continue, as slowing money supply growth is inevitable with slowing population and economic growth. This is not true in a true free market monetary system<ref>[http://lewrockwell.com/woods/woods225.html Greenbackers Are Nuts]</ref> but is true of our current government manipulated debt-based system.<ref>[http://www.moneyasdebt.net/ Money as Debt]</ref>

When debt levels are unsustainable there are only a limited number of possible scenarios, and as each country reaches its debt limits each country will need to choose between these alternatives, as Iceland, Ireland, Cyprus, Greece and many other countries have already experienced. The debt is monetized, the debt is forgiven by the creditor, the debt is repudiated by the debtor and defaulted upon, the debt is postponed by temporary suspension of repayments, or the debtor finds unexpected or new ways to pay back the debt, which may include theft or confiscation from others.<ref>[http://www.zerohedge.com/news/2014-01-24/guest-post-how-paper-money-experiment-will-end How The Paper Money Experiment Will End]</ref>

The "Icelandic Solution" involved repudiation.<ref>[http://www.zerohedge.com/node/475643 The Secret Sauce of Iceland's Success Story: Debt Liquidation?]</ref> Private banks were allowed to fail and social security measures for the poor and indebted were increased. However this option is virtually impossible in other larger, less homogeneous countries given the power of the financial services sector over government in most other countries.<ref>[http://www.zerohedge.com/news/2013-01-26/only-3-minutes-worth-listening-davos Interview with Iceland's President Olafur Ragnar Grimson]</ref> It should be noted that all IMF member countries have a central bank at the heart of their financial system.<ref>[http://www.zerohedge.com/news/2013-09-16/25-fast-facts-about-federal-reserve Fast Facts About the Federal Reserve]</ref> The UK went so far as to trigger anti-terrorism legislation against Icelandic banks in a bid to pressure Iceland to pay out claims against its private banks.<ref>[http://reason.com/archives/2012/09/07/iceland-provides-a-blueprint-for-survivi Iceland Shows Other Europeans How to Survive Bankruptcy], ''Reason''</ref>

The simplest and cleanest solution for any debt-fuelled crisis is simply to [[default]] and not attempt to pay back the loans - particularly if the debt has been created unethically or fraudulently.<ref>[http://mises.org/daily/6369/The-Ethics-of-Repudiation The Ethics of Repudiation]</ref><ref>[http://mises.org/daily/5476/ There Is Life After Default], Peter Klein</ref><ref>[http://www.oftwominds.com/blogsept11/Zeus-debt-forgiveness-9-11.html Endgame], Zeus Yiamouyiannis, Ph.D.</ref><ref>[http://globaleconomicanalysis.blogspot.com/2011/02/massive-rout-in-irish-elections.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+MishsGlobalEconomicTrendAnalysis+%28Mish%27s+Global+Economic+Trend+Analysis%29 Default Best Option for Ireland], MISH</ref><ref>[http://mises.org/daily/5449/Defaulting-on-the-Feds-Bonds Defaulting on the Fed's Bonds], Robert Murphy</ref> If, as Paul Krugman and other Keynesians have argued<ref>[http://lewrockwell.com/anderson/anderson330.html Do We Really 'Owe It to Ourselves]</ref> "we owe it to ourselves", then there should be no problem repudiating that debt as it would merely involve an accounting adjustment.<ref>[http://bastiat.mises.org/2013/02/we-only-repudiate-it-to-ourselves/ We Only Repudiate It to Ourselves]</ref> This was the solution chosen by Iceland, even in circumstances which involved powerful international creditors. Despite enormous pressure from the UK government to try to force the Icelandic government to bail out its banks, it chose not to do so and allowed the private banks to default.<ref>[http://www.dailymail.co.uk/news/article-1080233/Icelanders-hit-Brown-freezing-banks-assets-We-terrorists-campaign.html Icelanders hit back at Brown]</ref> The Greek government also partially defaulted on its debts in 2012.<ref>[http://www.bbc.co.uk/news/business-17341381 Greek Default]</ref> David Graeber, author of ''Debt: The First 5000 Years'' has stated a global debt Jubilee is inevitable.<ref>[http://www.youtube.com/watch?v=SxZtfi2pYNo&list=SPPszygYHA9K2ZtV_1KphSugBB7iZqbFyz&index=6 Max Keiser Interview with David Graeber]</ref> However, particularly where government debt default is involved, bankers generally do everything to avoid this "inevitable" outcome because it (a) reduces the value of their asset (debt-based government bonds) (b) reduces or even destroys their income stream (interest on bonds) and therefore may affect their retained earnings in future (and their credit rating and compliance with Basel III rules on Tier 1 capital) (c) can result in a systemic crisis as many banks will be using that government debt to satisfy their liquidity requirements and reduce counterparty risk - even more so under Basel III (which requires a minimum proportion of "liquid" assets to be held by the banks - and those "assets" mainly consist of government bonds) and (d) signals to other countries that it is possible to escape debt without consequence and so potentially reduces the value of government debt in surrounding countries.<ref>[http://globaleconomicanalysis.blogspot.com/2011/05/trichet-goes-ballistic-walks-out-of.html Trichet Goes Ballistic], MISH</ref> Self-interested bankers are therefore often desperate to avoid government debt default, and generally much prefer an economy to be strangled by debt rather than be freed of it.<ref>[http://globaleconomicanalysis.blogspot.com/2011/05/trichet-goes-ballistic-walks-out-of.html Trichet Goes Ballistic], MISH</ref>

Confiscation or theft is often the desperate debtor's only option, if the creditors are so powerful the debtor cannot default. The sudden confiscation of part of "insured" bank depositors' savings in Cyprus is an extreme example of the last option and is the international bankers' and creditor governments' preferred "solution" as it means their debts get repaid, however unjustly.<ref>[http://www.reuters.com/article/2013/03/17/us-eurozone-cyprus-risk-idUSBRE92G0BG20130317 Cyprus bank levy]</ref><ref>[http://www.marketoracle.co.uk/Article39536.html Cyprus Haircut]</ref><ref>[http://www.zerohedge.com/news/2013-03-22/ecb-set-fair-cypriot-standard-living-capital-controls Capital Controls in Cyprus]</ref>

As an example of the consequences of the two alternatives, Iceland did not try to save its private bankers but instead permitted them to default on private bond payments.<ref>[http://www.zerohedge.com/news/2013-01-26/only-3-minutes-worth-listening-davos Interview with Iceland's President Olafur Ragnar Grimson]</ref> Ireland on the other hand guaranteed private bank debt and in doing so subjected the taxpayers of that country to decades of payments for debts that were not incurred on their behalf or for their benefit. Many commentators have observed that in 2010 [[Iceland]] recovered much faster than other countries such as [[Ireland]].<ref>[http://www.smh.com.au/business/iceland-bounces-back-as-pain-leads-to-gain-20101208-18pvm.html Iceland Bounces Back]</ref><ref>[http://www.vanityfair.com/business/features/2011/03/michael-lewis-ireland-201103?printable=true When Irish Eyes Are Crying], Michael Lewis</ref> In his extensive analysis of the aftermath of the banking panic in Ireland, Michael Lewis wrote of his puzzlement that the timid Irish government thought it was beyond the bounds of acceptable political discourse to consider default on privately issued Irish bank bonds, when Iceland successfully defaulted and only after this did they nationalize their banking system.<ref>[http://www.vanityfair.com/business/features/2011/03/michael-lewis-ireland-201103?printable=true When Irish Eyes Are Crying], Michael Lewis</ref> Commentators still dispute the relative costs and benefits of the policies implemented in Iceland and Ireland. The inflation rate has remained higher but unemployment rate remained substantially lower in Iceland compared to Ireland.<ref>[http://mises.org/daily/6575/Inflation-Has-Not-Cured-Icelands-Economic-Woes Inflation and Iceland]</ref><ref>[http://www.marketoracle.co.uk/Article42958.html Bank Guarantee Bankrupted Ireland]</ref>

In the absence of outright default, some governments simply delay addressing the issues of debt and default, with the central bank buying government bonds and manipulating the stockmarket and other asset and commodity markets to keep solvency in the banking system and government alive.<ref>[http://lewrockwell.com/barnett/barnett39.1.html Are the Federal Reserve and Its Primary Dealer Banks Manipulating the Stockmarket?]</ref><ref>[http://www.gold-eagle.com/editorials_12/lundeen061712.html Market Manipulation]</ref> Time may allow re-inflation of the markets through the gradual injection of new [[debt money]] into the system through new borrowings. It is a rare "[[black swan]]" event for a cluster of private businesses or banks to default at the same time and governments often hope that this will not happen again once it has happened already. However, if the crisis is one of national solvency, waiting passively for recovery may only delay - and exacerbate - the final catastrophe as the debt-based monetary system pushes all businesses slowly towards the next crisis by confusing and misleading market participants with false price signals, particularly as they relate to interest rates. Once the next crisis hits because of even more confused price signals due to government interference in the market for money, time is something panicked financiers and investors are least likely to want to give up when the threat is never getting their [[money]] out of the imploding investment [[bubble]]. In extreme cases [[bank]]s could set up "independent" corporate investment vehicles to buy the assets associated with the [[bad debt]],<ref>[http://www.dealbreaker.com/2007/10/citigroup_looks_to_lend_money.php Citigroup looks to lend money]</ref> thereby allowing [[borrower]]s to liquidate their investments and allow time for the markets to re-inflate. Alternatively, these "sour" loans, that have gone bad through too much debt overwhelming the markets, could be dumped or "hidden" on the central bank's balance sheet, and swapped for more secure government debt (financed through compulsorily acquired taxes, which are immune from the risk of private bankruptcy). However the holding costs involved in these measures would be extremely high and would not guarantee that the losses could be averted if no new gullible investors could be found to offload these distressed assets.<ref>[http://www.youtube.com/watch?v=n8w6Nx2rfiE A Wikileaks for the Fed?]</ref> More fundamentally, these short-term "parachutes" used after bubbles burst do not save ordinary borrowers from [[foreclosure]] and [[bankruptcy]], nor do they address the pernicious long-term dysfunctional aspects of [[fractional reserve banking]] described above. These problems are temporarily averted, only to be dealt with yet again by the next generation of indebted governments and peoples.<ref>[http://www.informationclearinghouse.info/article18431.htm The Era of Global Financial Instability, by Mike Whitney]</ref><ref>[http://www.youtube.com/watch?v=n8w6Nx2rfiE A Wikileaks for the Fed?]</ref> Simply deferring the crisis and repeatedly bailing out the banks may simply entrench misallocation of resources within the financial and governmental sectors, starving private businesses of the savings needed to invest and produce.<ref>[http://www.zerohedge.com/news/2013-01-26/only-3-minutes-worth-listening-davos Interview with Iceland's President Olafur Ragnar Grimson]</ref>

The preferred long-term free market solution (outright default and a return to free market money and the abolition of legal tender and central banks) is extremely unlikely.<ref>[http://seekingalpha.com/article/273466-4-reasons-the-u-s-will-never-return-to-a-gold-or-silver-standard 4 Reasons the US Will Never Return to a Gold or Silver Standard]</ref> In addition, given that bankers and central banks "stole" most of the people's gold, with mass confiscations dating back to the 1930s in the US<ref>[http://www.gold-eagle.com/editorials_08/nielson031411.html The Great Gold Bait-And-Switch] Jeff Nielson</ref> and earlier in Europe,<ref>[http://www.lewrockwell.com/north/north107.html Buyers of Gold], Gary North</ref> an immediate and uncompensated<ref>[http://theeconomiccollapseblog.com/archives/10-things-that-would-be-different-if-the-federal-reserve-had-never-been-created 10 Things That Would Be Different]. Note: "uncompensated" in this context means "without allowing widespread debt default with minimal punishment" or "without the issuance of debt-free money to the general populace prior to a return to the gold standard"</ref> return to the gold standard now would simply further enrich bankers and impoverish workers through crushing deflation, as the value of the assets the middle class had previously saved in (housing and mutual funds) collapsed and gold (the "elite banker's money") suddenly soared in value,<ref>[http://www.zerohedge.com/news/2013-02-26/central-banks-cannot-create-wealth-only-liquidity Central Banks Cannot Create Wealth]</ref> allowing bankers yet another generation of largesse from past theft. It should be noted that one of the principal financial assets of both the IMF and the US central bank is confiscated gold (the other being government bonds).<ref>[http://www.xat.org/xat/worldbank.html The History of Money]</ref> Less than 1% of all pension fund assets held by the general public are currently allocated to physical precious metals and many mutual funds have mandates effectively prohibiting them from holding physical precious metals.<ref>[http://sgtreport.com/2011/07/gold-silver-and-pension-funds-portfolio-diversification-myths/ Gold, Silver and Pension Funds]</ref> If the gold price were to soar, the very institutions most responsible for financial disorder would be those most likely to benefit from the chaos, having already positioned themselves to benefit from any price explosion in gold.

Given that both the Icelandic and radical free market solutions are effectively impossible to implement to any significant extent, some analysts of the current debt-based monetary system consider that, after decades of excess debt and fiat money, the current capital structure is so distorted and malinvested, the food supply so industrialized and vulnerable to shocks, and the environment generally so polluted from government-protected mining and mass industrialization that there is no hope for the vast majority of the middle class and indeed the mass of humanity in the coming decades as a combination of periodic confiscation and selective debt monetization destroys any stability in the world economy.<ref name="death"/>

Getting back to a market-based banking system would require, at minimum: (1) abolition of all deposit insurance; (2) eliminating the doctrine of "Too Big to Fail" by prohibiting the central bank from buying any assets from insolvent banks; and (3) allowing the market to set interest rates by removing this price fixing power from the central bank and allowing the real inter-bank market to set interest rates.<ref>[http://bastiat.mises.org/2012/06/misesians-in-mordor-the-video/ Misesians in Mordor]</ref> However, such changes to the global monetary system would likely trigger immediate bank runs on the weakest banking institutions and (most likely) a systemic crisis, resulting in a sudden deep depression in the short term and a period of minimal or no capital investment in the medium term as access to lending dried up from suddenly illiquid financial institutions. Although in the minds of many Austrians, the resulting system would be greatly preferable to the current dysfunctional and unsustainable system, the transition period would likely be so traumatic that no democratic government (or no government at all) would likely countenance such deregulation, nor would they likely be allowed to by the banks themselves.

Government and banking have become so intertwined there is virtually no difference between them, as banks bail out governments who in turn bail out banks in Ponzi scheme fashion.<ref>[http://www.guardian.co.uk/commentisfree/2012/mar/22/greece-european-banks-eurozone European banks saving Greece or themselves?]</ref>

Coercive, rule-bound government, by its very nature, can only perpetuate itself if it constantly maintains a monopoly of force and is widely respected as the final arbiter of disputes between any two parties within its jurisdiction.<ref>[http://www.dailypaul.com/140907/hans-hoppe-on-why-he-thinks-limited-government-is-impossible Hans Hermann Hoppe on why limited government is impossible]</ref> Governments do not obtain their revenue through donations or voluntary payments but rather either tax the populace or print fiat money to spend on projects the government deems worthwhile. There is therefore an inherently dangerous power in government spending. Good government exists to provide public goods, regulate externalities and protect and enforce property rights.<ref>[http://blog.mises.org/6546/james-wilson-on-the-purpose-of-government-and-the-constitution/ James Wilson on the purpose of government], James Galles</ref> However, if government force is used not for public purposes but to protect and enhance the power of a tiny political and financial elite, parasitic thieving forces can take over monopoly government and destruction of the economy can occur without the ability of the people to revolt or defend themselves against the depredations of government force.<ref>[http://www.lewrockwell.com/orig11/wile13.1.html One World Government], Hans Hermann Hoppe</ref><ref>[http://www.youtube.com/watch?v=DNcDu0z9UfQ Matt Tiabbi Interview on UBS Scandal]</ref> Destructive policies can therefore continue for longer than the survival of the economy itself, especially if people have been lulled into complacency by a long history of relatively benign government whilst parasitic forces slowly take over power from behind the scenes.<ref>[http://www.lewrockwell.com/orig11/wile13.1.html One World Government], Hans Hermann Hoppe</ref> Some consider that modern democracy has been subverted and that the two-party choices being presented today are a charade, with little real difference between duopoly political parties, which are just shams to cover the slow but inexorable takeover of the levers of power by the financial "elite", who do not respect nor care about the will of the people, who they consider too stupid or powerless to be treated seriously.<ref>[http://www.youtube.com/watch?v=DNcDu0z9UfQ Matt Tiabbi Interview on UBS Scandal]</ref><ref>[http://globaleconomicanalysis.blogspot.com/2011/06/vote-for-whoever-you-want-bailout.html Vote for Whoever You Want], MISH</ref><ref>[http://lewrockwell.com/wile/wile36.1.html Stop Clinging to False Hope], Anthony Wile</ref><ref>[http://www.marketoracle.co.uk/Article28949.html United States of Denial], James West</ref> Since the mid-1990s and even earlier it has been argued by many commentators that the gold default of August 15, 1971 would inevitably lead to economic disaster due to the distorting and parasitic effects unlimited fiat money and credit creation would have on the productive private economy.<ref>[http://dailyreckoning.com/armageddon-can-wait/ Armageddon Can Wait], Bill Bonner</ref><ref>[http://www.nytimes.com/2011/08/01/business/deal-may-avert-default-but-some-ask-is-that-good.html?pagewanted=1&_r=1&hpw Deal May Avert Default, but Some Ask 'Is That Good?']</ref><ref name="Landis_Reprieve" /> The relentless exponential growth in retirement and welfare benefits will now be enough to bankrupt many Western governments (including the United States).<ref name="Landis_Reprieve" /><ref>[http://www.amazon.com/Boomergeddon-Deficits-Government-Devastate-Retirement/dp/1892538539/ref=sr_1_1?ie=UTF8&qid=1305008253&sr=8-1 Boomergeddon], James A. Bacon Jr</ref> No one in power today appears willing to tackle either the corrupt banking industry or government largesse.<ref>[http://www.youtube.com/watch?v=DNcDu0z9UfQ Matt Tiabbi Interview on UBS Scandal]</ref><ref>[http://globaleconomicanalysis.blogspot.com/2011/06/vote-for-whoever-you-want-bailout.html Vote for Whoever You Want], MISH</ref><ref>[http://www.prudentbear.com/index.php/thebearslairview?art_id=10538 Sayonara, Washington], Martin Hutchinson</ref> Too many in power have a vested interest in the continuation of the system of spiraling inflation and debt to stop it, even if it could be stopped.<ref>[http://www.youtube.com/watch?v=DNcDu0z9UfQ Matt Tiabbi Interview on UBS Scandal]</ref><ref>[http://www.zerohedge.com/article/guest-post-global-economy-burns-while-its-leaders-fiddle Global Economy Burns, While Its Leaders Fiddle], Nomi Prins, ZeroHedge</ref> Whilst the general economy suffers, old infrastructure collapses, man-made environmental crises abound, retailers go bankrupt, millions are foreclosed upon and are left homeless (whilst at the same time hundreds of thousands of houses lie empty and decaying) and real average incomes are decimated, perversely, banking bonuses and lobbyists' incomes have skyrocketed and the powers of the Fed and other central banks have increased because of increased regulatory duties despite their previous failures.<ref>[http://www.guardian.co.uk/politics/2011/jan/10/banks-unlimited-bonuses-ministers Banks given go-ahead to pay unlimited bonuses], Guardian UK</ref><ref>[http://www.creditcrunch.co.uk/forum/topic/9253-banking-cheats-will-always-prosper/ Bank Cheats Will Always Prosper], CreditCrunch.co.uk</ref><ref>[http://dailyreckoning.com/the-expanding-industry-of-us-government/ The Expanding Industry of US Government], Bill Bonner</ref> Despite this obvious incompetence and despite repeated failures of policy at the highest levels, anyone advocating solutions beyond those approved within failed mainstream two-party thought is commonly labelled "insane", "crazy" or an "extremist".<ref>[http://www.salon.com/news/opinion/glenn_greenwald/2010/05/28/crazy Who are the real "crazies"?], Glenn Greenwald, Salon.com</ref><ref>[http://lewrockwell.com/orig11/mullen-t4.1.1.html Extremism is the New Race Card], Tom Mullens</ref><ref>[http://www.telegraph.co.uk/finance/financialcrisis/8669352/Global-slump-warnings-if-US-triggers-insane-default.html Global slump warning if US triggers 'insane' default], Ambrose Evans-Pritchard</ref> Noted gold investor, Jim Sinclair, has publicly stated that the chaos has one cause - bankers have bought governments around the world and today's bankers are little more than irredeemably shallow "sociopaths", unable to grow a conscience and unable to foresee or care about the broader societal consequences of their actions beyond their own incestuous social groupings.<ref>[http://jsmineset.com/2009/08/31/china-invokes-a-stop-loss-on-otc-derivatives/ OTC Derivatives], Jim Sinclair</ref><ref>[http://maxkeiser.com/2011/07/17/alex-jones-on-satanic-rituals-of-bohemian-grove/ Alex Jones on Bohemian Grove], RTTV</ref> Leading British specialists in the pathology of the psychopath, Professors Robert Hare and Paul Babiak suspect the banking industry does indeed attract psychopaths and probably has a much higher proportion of mentally unstable psychopaths as executives compared to other industry sectors, although their comprehensive test (determining the degree of psychopathology in the workplace) has yet to be applied to the banking sector or to senior government officials or politicians.<ref>[http://www.ft.com/intl/cms/s/0/41fe2882-9cbe-11e0-bf57-00144feabdc0.html#axzz1QH9AQOwG Alfred Hitchcock' 'The Bankers'], James Makintosh, FT.com</ref> Michael Price, co-director of the Centre for Culture and Evolutionary Psychology at Brunel University in London agrees that the characteristics that make for good traders and investment bankers are very similar to those that define psychopaths. Former UK drug tsar David Nutt has stated that the banking crisis was caused by too many bankers taking cocaine.<ref>[http://www.telegraph.co.uk/finance/financialcrisis/9993266/Financial-crisis-caused-by-too-many-bankers-taking-cocaine-says-former-drugs-tsar.html Financial crisis caused by too many bankers taking cocaine], ''Telegraph''</ref> Therefore, given their likely sociopathic mind-set and hedonistic cocaine drug culture, provided they themselves are acquiring a greater share of gross national income, many bankers simply do not care about the consequences and will continue to label others as "crazy" or "insane" or "terrorists" for so long as it gives them cover to engage in their own [[embezzlement|criminal]] conduct and for so long as it permits the in-bred corruption to continue at the highest levels.<ref>[http://www.mises.org/daily/6314/Why-Bankers-Avoid-the-Public-Eye Banking and the State]</ref><ref>[http://blogs.telegraph.co.uk/news/nilegardiner/100099341/joe-biden-compares-the-tea-party-to-terrorists-is-this-the-most-crass-and-nasty-white-house-in-modern-us-history/ Joe Biden compares the Tea Party to terrorists], Nile Gardiner, UK Telegraph</ref> If the charade collapses and the elite are threatened, they will simply kill anyone who threatens them, as they have proven to do repeatedly in the past.<ref>[http://www.lewrockwell.com/lewrockwell-show/2011/02/15/187-confessions-of-an-economic-hit-man/ Confessions of an Economic Hit-Man], John Perkins</ref>

It should be noted that average bankers still earn around US$370,000<ref>[http://www.guardian.co.uk/business/2011/jan/14/jp-morgan-bankers-share-10bn Anger as JP Morgan bankers get $10bn pay and bonus pot]</ref> (or around £236,000 in the UK)<ref>[http://www.guardian.co.uk/business/2011/feb/15/barclays-capital-average-pay-236000-pounds Barclays investment bankers see average pay rise to £236,000]</ref> and this has steadily increased even in the aftermath of the financial crisis. Those who head up the "Too Big To Fail" banks earn around US$18 million per year, with some executives doubling their own pay in 2010.<ref>[http://www.guardian.co.uk/business/2011/apr/02/lloyd-blankfein-executive-pay-bonuses Goldman Sachs CEO's pay nearly doubles despite slump in profits]</ref> Lawyers who service and support the international banking and business community are reported to be earning up to US$2 million a year even in small peripheral countries such as Australia.<ref>[http://www.afr.com/p/national/legal_affairs/talent_war_pushes_star_lawyers_pay_ZDlK7zEXWaISbNy1QCtIUO Anger as JP Morgan bankers get $10bn pay and bonus pot]</ref>

Given many of these people are not actually producing services people would voluntarily pay for in a genuine free market economy, many of these service providers associated with the issuance and distribution of monopoly currency would be made redundant or be rendered unemployable almost immediately upon a return to a true free market gold standard. It is to be expected that these people would be violently opposed to any change in the ''status quo'' given the dramatic change in lifestyle that this would necessitate. In particular, it is to be expected that these people would specifically oppose the abolition of legal tender laws and fight against any formal declaration by any government that fractional reserve banking is a form of [[embezzlement]] or counterfeiting, or that the current financial system is a [[Ponzi scheme]] (which are generally illegal in most Western countries if they are not government-supported).

Jim Sinclair suggests that many senior participants in the international banking and derivatives industry should be jailed<ref>[http://jsmineset.com/2010/10/31/jims-mailbox-573/ Debt Burden Being Transferred], Jim Sinclair</ref> to protect the public from repeatedly being "raped"<ref>[http://jsmineset.com/2010/11/21/in-the-news-today-713/ EU Ministers Said To Plan Meeting Over Ireland], Jim Sinclair</ref> by their scams and has the following conclusion on his website:<ref>[http://jsmineset.com/2010/11/09/in-the-news-today-701/ There is no practical solution], Jim Sinclair</ref>

{{quote|For years I have been telling you that there is NO PRACTICAL SOLUTION to the total of all the mistakes that have been made since Roosevelt, in a depression, started it all.}}

Jim Sinclair considers it too late to save the system<ref>[http://www.youtube.com/watch?v=IF24atvNkSo&feature=player_embedded Jim Sinclair Interviewed by James Turk] Quote: "Who needs enemies when we have the financial leadership we have?"</ref> and recommends people become self-sufficient and buy gold to await the inevitable collapse of the political and economic system and the associated breakdown in the division of labor.<ref>[http://jsmineset.com/2011/04/07/the-system-has-failed/ The System Has Failed], Jim Sinclair</ref>

Max Keiser has stated that the culture of actual ''physical'' sexual coercion and harrassment allegedly exhibited in the financial services industry is simply symptomatic and an outgrowth of a culture of ''financial'' rape and exploitation.<ref>[http://www.youtube.com/watch?v=skwj6e9xvH8&feature=player_embedded#at=102 Savers vs Speculators] Quote: Max Keiser: "Munich Re, a financial terrorist responsible for creating ghettos. Financially disadvantaged folks who are on the short end of the 'ghettoization' of the financial terrorist schemes...are forced to wear ''yellow armbands'' and be ''sex slaves'' for their German hosts." Stacy Herbert: "Yes. And be stamped on their arms afterward to prove that they were used." Max Keiser: "Yes. Let's not forget the little serial code-stamp on the wrist as part of the package." Stacy Herbert: "But Max, the story here is that this goes from the very bottom. These are just agents going door-to-door selling insurance products in the financial services industry. The top of the pyramid of the banking Establishment is Dominique Strauss-Kahn." Max Keiser: "This is a culture. Dominique Stauss-Kahn is part of the banking ''culture''. There's Dominique Strauss-Kahn, Lloyd Blankfein, Jamie Dimon, this guy Pandit over at Citigroup, the CEO just paid himself $42 million for stealing $420 million - they have a culture of predator behavior where once you - like a serial killer - once you steal money from people with mortgage fraud or with banking fees that are illegitimate or with collateralized debt obligations you get a taste for serial financial killing. You graduate to these higher crimes and you become a Dominique Strauss-Kahn or a Lloyd Blankfein or a Jamie Dimon where serial financial murder is part of your day-to-day life. That's the culture you live in."</ref> In order to be part of the system, you must be blind to its consequences. Therefore, no one with a conscience can become powerful enough within the system to fundamentally change trajectory from its current catastrophic path.<ref>[http://www.youtube.com/watch?v=WqyCjR9JEMA&feature=player_embedded Nothing Stops Banks], Matt Taibbi</ref>

Ironically, many victims of rape and abuse come to blame themselves and never fight back, preferring to adapt to a life of abuse or enslavement. This is called "learned helplessness" in psychological terms. Doug French finds a direct analogy between the dynamics of ''physical'' rape and ''financial'' abuse, with many indebted individuals ''blaming themselves'' for their predicament and refusing to default on their debts, even though it would be in their clear financial interest to do so.<ref>[http://mises.org/daily/5409/BatteredHomeowner-Syndrome Battered Homeowner Syndrome], Doug French. Quote: 'Lenore Walker is the pioneer in the field of battered-spouse syndrome, with her book The Battered Woman. She believes that experiencing the repeated cycles of violence can result in a spouse developing "learned helplessness," a psychological state identified by psychologist Martin Seligman. The abused believe they lack control over their situation and are convinced escape is impossible. Their motivation to escape diminishes as they become increasingly passive.

Walker explains that the constant cycles of violence and reconciliation result in the following beliefs:

The abused

believes that the violence was his or her fault,
has an inability to place the responsibility for violence elsewhere,
fears for his/her life and/or the lives of his/her children, and
has an irrational belief that the abuser is omnipresent and omniscient.

These beliefs are strikingly similar to what underwater homeowners feel.

The abused believes that the violence was his or her fault. "It was my own fault for buying a house at the top of the market in the first place and borrowing too much money to do it." "I made my bed, now I must sleep in it, no matter how much financial pain it causes me."

The abused has an inability to place the responsibility for violence elsewhere. "It's nobody's fault but my own," say people with 20/20 hindsight. "Nobody made me sign the mortgage. I'm so stupid. The bank doesn't have to negotiate with me."

The abused fears for his/her life and/or the lives of his/her children. "My credit will be ruined. I won't be able to rent an apartment. My low credit score may keep me from getting a job. I don't want to uproot the kids and have to admit that daddy and mommy made a financial mistake."

The abused has an irrational belief that the abuser is omnipresent and omniscient. The abuser in this case is the lender or owner of the mortgage. The borrower fears that these lenders can take everything they have, leave them with nothing, and make their lives miserable forever.

At the same time, default moralizers reinforce these feelings. They have no sympathy for those making a poor housing and mortgage choice. A person must suffer the consequences of their actions, it's claimed.'</ref>

John Perkins, author of ''Economic Hitman'', has openly stated that the U.S. government is merely a front runner for major corporate interests and has brutally assassinated leaders of countries where reform has been attempted.<ref>[http://www.youtube.com/watch?v=xmU9R-BaFIQ Max Keiser Interview with John Perkins]</ref> The zealotry and extremism against genuine and honest monetary reformers on the one hand and the payoffs and largesse given to unprincipled and corrupt supporters of the current monetary regime on the other ensure there is no path of reform left for those potential leaders with a conscience.<ref>[http://www.zerohedge.com/article/more-political-capture-goldman-hires-top-republican-fed-transparency-foe-spends-more-time-se More Political Capture], ZeroHedge</ref>

Dimitry Orlov, author of ''Reinventing Collapse'', has written extensively about the striking similarities between the collapse of the USSR and the multiple environmental, economic and social crises facing the USA. He also predicts economic, political and social collapse in much of the West and in particular predicts that peak oil will result in some countries being cut off completely from oil supplies resulting in sudden social upheaval and starvation and believes that it is too late for any kind of meaningful reform:<ref>[http://www.youtube.com/watch?v=KLdwzcA9ZdM&feature=player_embedded#at=997 Dimitry Orlov Interview with Max Keiser - ''Reinventing Collapse'']</ref>

{{quote|(US military adverturism overseas) is just a very striking example of being unable to stop, even though what you're doing isn't actually working...

By demolishing as much of the social infrastructure as exists in the country... you will end up with an even less literate population that will be unable to oppose the government, unable to stand up for themselves and demand that their rights and needs be met...

People who think they can somehow skirt the financial system are wrong. They will be dominated by the Bernankes of this world and others. There isn't really a way out except to make do without money. And that's kind of what I try to explain to people is: Reduce your needs for any kind of interaction with the official economy and you will do better.}}

Given these repeated financial crises arising from the fiat monetary system, many [[monetary reform]]ers predict that there will inevitably be widespread default or hyperinflation or depression - or most likely all three simultaneously in what Ludwig von Mises predicted would be a "final and total catastrophe" of our unsustainable, Ponzi-like, fiat monetary system.<ref>[http://mises.org/daily/5041/Whats-Behind-the-Currency-War What's Behind the Currency War], Anthony Mueller</ref> After this "catastrophe"<ref name="Landis_Reprieve">[http://www.goldensextant.com/SavingtheSystem.html Fiat's Reprieve: Saving the System, 1979-1987], Robert K. Landis, August 21, 2004.</ref> in which a significant proportion of the population may die through starvation or war<ref>[http://lewrockwell.com/bonner/bonner602.html We're all going to die]</ref><ref>[http://www.zerohedge.com/article/20-signs-horrific-global-food-crisis-coming?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+zerohedge%2Ffeed+%28zero+hedge+-+on+a+long+enough+timeline%2C+the+survival+rate+for+everyone+drops+to+zero%29 20 Signs], ZeroHedge</ref><ref>[http://www.lewrockwell.com/adams-m/adams-m15.1.html US Agriculture Collapse]</ref><ref>[http://www.marketoracle.co.uk/Article26605.html Population Reduction], Chris Kitze</ref><ref>[http://www.rickackerman.com/2011/03/getting-the-jump-on-a-possible-food-shortage/ Getting the Jump on Food Shortages], Marilyn Ackerman</ref><ref>[http://www.goldismoney2.com/archive/index.php/t-524.html?s=d418ff253326772a09e1a8d992da7753 Venetian Bankers and the Dark Ages]</ref><ref>[http://mises.org/daily/6142/The-Apocalyptic-Vision-of-The-Road The Road], Ben O'Neill</ref> a spontaneous market-induced return to the [[gold standard]] is anticipated to be the most likely result.<ref>[http://www.youtube.com/watch?v=VMngK0t5WkY Mike Maloney interview with Max Keiser], The Keiser Report</ref><ref name="Landis_Reprieve" /><ref>[http://globaleconomicanalysis.blogspot.com/2011/02/us-dollar-about-to-lose-reserve.html US Dollar About to Lose Reserve Currency Status: Fact or Fiction?], MISH</ref><ref>[http://www.marketoracle.co.uk/Article40253.html The Great Gold Redemption], Peter Schiff</ref> Other possible solutions following the catastrophe include a return to legally enforced full reserve banking combined with the issuance government-issued debt-free [[fiat currency]], or [[free banking]] and the issuance of private coinage and private money. If these solutions are not initiated soon, it can be expected that a complete financial "meltdown" will ensue at some stage, as environmental crises and destruction of arable land slow GDP growth in developing nations and fewer young people in developed economies can be found who are willing to go into debt in sufficient magnitude to pay off the debts that have already been accumulated.<ref name="Bonner_Swan" /><ref name="Landis_Reprieve" /> As extreme inequality increases, [[foreclosure]]s mount and financial crises repeatedly erupt, many believe a political crisis will eventually result in calls for revolution and fundamental [[monetary reform]].<ref>[http://www.youtube.com/watch?v=uV_gwvSibmM&feature=player_embedded#at=510 Max Keiser on Alex Jones]</ref><ref>[http://www.youtube.com/watch?v=VMngK0t5WkY Mike Maloney interview with Max Keiser], The Keiser Report</ref><ref name="Landis_Reprieve" /> However, as noted above, some commentators consider that it is already too late to avoid a combined financial, environmental and demographic catastrophe even if reform is now attempted.<ref>[http://globaleconomicanalysis.blogspot.com/2011/03/oil-prices-are-double-edged-sword-peak.html Peak Everything?], MISH</ref><ref>[http://www.population-security.org/28-APP2.html NSSM 200 Directive], Henry A. Kissinger, April 24, 1974</ref><ref>[http://www.youtube.com/watch?v=0KInB2rvgaY&feature=fvsr Eco Eco Disaster], Keiser Report</ref>

Even if worldwide economic catastrophe cannot be averted at this stage of the metastasizing financial crisis, choices will still need to be made by each government in response to the crisis. On-going, worsening, [[debt]]-created crises in the economy and society (and the unsustainable damage to the [[environment]] caused by debt-created [[overconsumption]]) are likely to turn monetary and economic policies either to the extreme left or to the extreme right, as there are a number of competing solutions to the debt-based monetary "problem".<ref>[http://www.youtube.com/watch?v=jqjyk2cx5WU&feature=player_embedded#at=696 Taste of Freedom E126], Max Keiser, Keiser Report</ref> It should be noted that some commentators consider that Western governments have in recent years chosen a combination of the "worst" of all possible options: bailing out banks and increasing government spending and indebtedness whilst periodically trying to enforce austerity against the middle class and the ordinary working class.<ref>[http://www.zerohedge.com/news/2013-01-26/daniel-hannan-destroys-3-unquestionable-myths-our-crisis Daniel Hannan Oxford Speech]</ref> Some have called Western government policy reactions to the financial crisis as a decisive move towards "Crony Capitalism" that is neither "free market" nor "socialist" but rather the last desperate acts of a corrupt banker-government cabal of "counterfeiters".<ref>[http://www.zerohedge.com/news/2013-02-06/guest-post-all-well All Is Well], Jim Quinn</ref><ref>[http://www.mises.org/daily/6314/Why-Bankers-Avoid-the-Public-Eye Banking and the State]</ref><ref>[http://www.marketoracle.co.uk/Article37021.html Why We Are Bailing Out the Banks], Jesse</ref><ref>[http://www.economist.com/news/books-and-arts/21565142-how-america-bailed-out-banks-rather-its-citizens-crisis-mismanagement How America bailed out the banks rather than its citizens] ''The Economist''</ref><ref>[http://www.lewrockwell.com/rothbard/frb.html Fractional Reserve Banking], Murray Rothbard</ref> If this is correct, the destruction of economic capital in those countries adopting the Crony Capitalist model in response to the financial crisis will likely result in the descent into quasi-Third World status.<ref>[http://seekingalpha.com/article/309501-how-the-u-s-is-quickly-becoming-a-third-world-country-part-1 How the US is quickly becoming a Third World Country], Seeking Alpha</ref><ref>[http://www.lewrockwell.com/spl2/us-becoming-third-world.html 10 Signs the US is becoming a Third World Country]</ref><ref>[http://www.youtube.com/watch?v=qDKvSMZNgjc Peter Schiff Rips Paul Krugman on Economy]</ref><ref>[http://www.zerohedge.com/news/2013-07-24/guest-post-bankers-own-world Bankers Own the World]</ref>

===Libertarians, Austrians and commodity money===

[[Libertarians]] and [[Austrian School]] supporters envision a voluntary society of free markets (where banks - however large - are allowed to fail if they cannot perform their obligations),<ref>[http://www.zerohedge.com/news/2013-01-26/daniel-hannan-destroys-3-unquestionable-myths-our-crisis Daniel Hannan Oxford speech]</ref> small government<ref>[http://www.prudentbear.com/index.php/thebearslairview?art_id=10473 Models of Capitalism], Michael Hutchinson</ref> and the abolition of monopolistic legal tender laws,<ref>[http://mises.org/daily/5562/The-Real-Solution-to-the-Debt-Problem The Real Solution to the Debt Problem], David D'Amato</ref><ref>[http://lewrockwell.com/paul/paul766.html Legalize Currency Competition], Ron Paul</ref> allowing money backed by a ''free market''<ref>[http://www.lewrockwell.com/blog/lewrw/archives/94712.html Subcommittee Explores Sound Money]</ref><ref>[http://mises.org/daily/5562/The-Real-Solution-to-the-Debt-Problem The Real Solution to the Debt Problem], David D'Amato</ref> [[gold standard]] or [[silver standard]] to come back in circulation (or some other free market money system such as Bitcoin).<ref>[http://www.salon.com/2013/03/22/a_libertarian_nightmare_bitcoin_meets_big_government/ Bitcoin]</ref><ref>[http://lewrockwell.com/north/north1009.html Counterfeit Gold Standards], Gary North</ref><ref>[http://lewrockwell.com/orig11/krolman5.1.1.html Accidentally Conceived in 1971], Arthur M.M. Krolman</ref><ref>[http://www.marketoracle.co.uk/Article27532.html Why Monetary Expansion Must Stop], Patrick Barron</ref><ref>[http://www.marketoracle.co.uk/Article26339.html Silver and Opium], Antal E. Fekete</ref><ref>[http://www.marketoracle.co.uk/Article25212.html The Faults of FRB], Thorsten Polleit</ref> It should be noted that even a partial return to the gold standard (allowing foreign central banks to redeem US government bonds in US gold) would result in the gold price having to rise to approximately $20,000 per ounce.<ref>[http://www.zerohedge.com/news/2013-02-26/central-banks-cannot-create-wealth-only-liquidity Central Banks Cannot Create Wealth]</ref><ref>[http://www.youtube.com/watch?v=2rJspP6q3g8 Mike Maloney Interview with Max Keiser]</ref>

It must be emphasized that a ''necessary'' pre-condition in establishing a true free-market order would be the complete abolition of all legal tender laws<ref>[http://www.nysun.com/opinion/ron-paul-upping-the-ante-in-his-campaign/87502/ Ron Paul Upping the Ante]</ref> and the abolition of monopolistic central banking, including repeal of the [[Federal Reserve Act]] of 1913.<ref>[http://mises.org/daily/5562/The-Real-Solution-to-the-Debt-Problem The Real Solution to the Debt Problem], David D'Amato</ref><ref>[http://www.drschoon.com/articles%5CSilverGoldAndTheLastAmericanHeroJFK.pdf Silver, Gold and the Last American Hero JFK], Darryl Robert Schoon. Extracted quote from Ron Paul: "The United States Constitution grants to Congress the authority to coin money and regulate the value of the currency. The Constitution does not give Congress the authority to delegate control over monetary policy to a central bank. Furthermore, the Constitution certainly does not empower the federal government to erode the American standard of living via an inflationary monetary policy." Note: Another argument – that the power to "coin" money precludes issuance of paper money, and that the government must redeem paper money with "precious metal" – was dismissed as frivolous in ''Milam v. United States'', citing the Legal Tender Cases.</ref><ref>[http://www.lewrockwell.com/blog/lewrw/archives/73833.html End the Fed], Freedom Watch</ref><ref>[http://mises.org/daily/4860 Money: Sound and Unsound], Mark Thornton commentary on Joseph Salerno's book</ref><ref>[http://www.prudentbear.com/index.php/thebearslairview?art_id=10471 Gold Standard Renaissance?]</ref><ref>[http://www.marketoracle.co.uk/Article24632.html The Gold Standard Never Dies], [[Lew Rockwell]]</ref><ref>[http://www.prudentbear.com/index.php/thebearslairview?art_id=10471 Gold Standard], Michael Hutchinson</ref><ref>[http://mises.org/store/Money-Bank-Credit-and-Economic-Cycles-P290C0.aspx Money, Bank Credit and Economic Cycles], Jesus Huerta de Soto, Mises Institute ISBN: 978-1-933550-39-8</ref><ref>[http://radio.goldseek.com/griffin04.10.10.php Goldseek interview] with [[G. Edward Griffin]]</ref><ref>See also these [[Murray Rothbard]] articles: [http://www.mises.org/money.asp What Has Government Done to Our Money?], [http://www.mises.org/story/1829 The Case for the 100% Gold Dollar]; [http://www.lewrockwell.com/rothbard/cartelization.pdf The Fed as Cartel], [http://www.lewrockwell.com/rothbard/rothbard191.html Private Coinage], [http://www.lewrockwell.com/rothbard/rothbard190.html Repudiate the National Debt]; [http://www.lewrockwell.com/rothbard/rothbard181.html Taking Money Back], [http://www.lewrockwell.com/rothbard/rothbard163.html Anatomy of the Bank Run], [http://www.lewrockwell.com/rothbard/rothbard128.html Money and the Individual]</ref> "Capitalism" or "the free market" cannot be blamed or held responsible for current dire economic conditions given this coercive government prohibition against competition in currency creation.<ref>[http://mises.org/daily/5562/The-Real-Solution-to-the-Debt-Problem The Real Solution to the Debt Problem], David D'Amato</ref> Some Keynesians dismiss this desire to return to the gold standard by pointing out that financial crises occurred prior to the creation of the Fed.<ref>[http://www.pbs.org/newshour/businessdesk/2013/06/paul-krugman-on-why-david-stoc.html Paul Krugman Interview]</ref><ref>[http://www.frbsf.org/economic-research/publications/economic-letter/2013/may/crises-before-after-creation-fed/ Crises Before and After the Fed]</ref> Austrians counter by stating that such crises, although possibly less frequent, have been more severe and long-lasting ''after'' the creation of the Fed.<ref>[http://mises.org/daily/3466 ABCT]</ref> In addition even those "panics" which occurred prior to the creation of the Fed had monetary causes relating to fractional bank regulation and speculation.<ref>[http://mises.org/document/695/ Panic of 1819}</ref> Some Libertarians would also support experimentation with [[full reserve banking]],<ref>[http://mises.org/daily/4860 Money: Sound and Unsound], Mark Thornton commentary on Joseph Salerno's book</ref><ref>[http://mises.org/store/Money-Bank-Credit-and-Economic-Cycles-P290C0.aspx Money, Bank Credit and Economic Cycles], Jesus Huerta de Soto, Mises Institute ISBN: 978-1-933550-39-8</ref><ref>[http://www.mises.org/Books/mysteryofbanking.pdf Murray Rothbard, ''The Mystery of Banking'']</ref> recognizing that when fractional-reserve banking is combined with the gold standard a strong cyclical bias (and the systematic transfer of real wealth to the banking system) is normally inevitable.<ref>[http://mises.org/daily/5174/Life-with-the-Fed-Sunshine-and-Lollipops Life With The Fed], Thomas Woods</ref><ref>[http://mises.org/daily/5185/The-Need-for-100-Reserves The Need for 100% Reserves], Frank D. Graham</ref> Those Libertarians who support full reserve banking would strongly support more flexible and forgiving bankruptcy laws in a fractional reserve banking environment, recognizing that no stigma should be attached to bankruptcy given the anti-Libertarian "unjust acquisition" of real wealth implicit in central banking, compulsory legal tender laws, fractional reserve banking and taxation.<ref>[http://mises.org/daily/4860 Money: Sound and Unsound], Mark Thornton commentary on Joseph Salerno's book</ref><ref name="Repudiating the National Debt">[http://mises.org/article.aspx?Id=1423 Repudiating the National Debt], Murray Rothbard</ref><ref>[http://www.mises.org/Books/mysteryofbanking.pdf Murray Rothbard, ''The Mystery of Banking'']</ref><ref>[http://gonzalolira.blogspot.com/2010/12/want-to-ruin-your-own-country-assume.html Want to Ruin Your Country?]</ref>

In the absence of sound money, over time large private corporations become mere extensions of powerful government and banking fiat.<ref>[http://www.zerohedge.com/news/2013-04-03/david-stockman-keynesian-endgame The Keynesian Endgame], David Stockman</ref><ref name="death"/><ref>[http://mises.org/rothbard/newlibertywhole.asp For A New Liberty], Murray Rothbard</ref><ref>[http://news.goldseek.com/EuroCapital/1313178959.php The Fix is In], Peter Schiff</ref> David Stockman has stated the following:.<ref>[http://www.zerohedge.com/news/2013-04-03/david-stockman-keynesian-endgame The Keynesian Endgame], David Stockman</ref>

{{quote|It not only shows that the so-called recovery is tenuous and highly skewed to a small slice of the population at the top of the economic ladder, but also that statist economic intervention has now become wildly dysfunctional. Largely based on opulence at the top, Wall Street brays that economic recovery is under way even as the Main Street economy flounders. But when this wobbly foundation periodically reveals itself, Wall Street petulantly insists that the state unleash unlimited resources in the form of tax cuts, spending stimulus, and money printing to keep the simulacrum of recovery alive.}}

Libertarians such as Murray Rothbard argue that in such a toxic monetary environment resource allocation is perverted by some or all of the following factors: corrupt alliances between so-called "private corporations" (which are often extensions of government or banking interests) and regulators; increasingly intensive business structures to suit the needs of a concentrated and cartelized banking system; and the constant overriding of small communities and local government planning with central government directives to satisfy the needs of big business.<ref>[http://news.goldseek.com/EuroCapital/1313178959.php The Fix is In], Peter Schiff</ref><ref name="death"/> In such a corrupted monetary system, libertarians argue that financial and man-made environmental crises cannot legitimately be blamed on "private" corporations but rather blame must fall squarely on the true source of the problem - centralized government control of credit and money, which in turn dilutes private property rights (especially in relation to traditional owners and farmers) and creates massive distortions in scarce resource allocation, with financial ''and'' environmental crises being the predictable consequence.<ref name="death"/><ref>[http://mises.org/rothbard/newlibertywhole.asp For A New Liberty], Murray Rothbard</ref><ref>[http://maxkeiser.com/2011/06/11/ote114-on-the-edge-with-peter-schiff/ Peter Schiff Interview with Max Keiser]</ref><ref>[http://www.marketoracle.co.uk/Article29029.html Getting Used to Life without Food], F. William Engdahl</ref>

Regarding the current accumulation of government bonds and private debt, many Libertarians believe that the creation of the [[Federal Reserve System|Federal Reserve]] under the [[Federal Reserve Act]] of 1913 was unconstitutional and consider that at least some of this accumulated debt should be canceled or forgiven ''prior'' to a return to the gold standard in recognition of its fundamental illegitimacy.<ref>[http://www.zerohedge.com/news/guest-post-federal-debt-criminal-scam-federal-reserve-criminal-syndicate Federal Debt As Criminal Scam], Charles Hugh Smith</ref><ref>[http://www.marketoracle.co.uk/Article29433.html The Never-Ending Economic Depression], Washington Blog</ref><ref>[http://www.zerohedge.com/article/antal-feketes-open-letter-ron-paul-impeach-bernanke Antal Fekete's Letter to Ron Paul]</ref><ref name="Repudiating the National Debt"/><ref>[http://www.youtube.com/watch?v=1zMv4Offm_8&feature=player_embedded#at=1341 Max Keiser Interview with Alex Jones]</ref><ref>[http://www.zerohedge.com/news/guest-post-federal-debt-criminal-scam-federal-reserve-criminal-syndicate Federal Debt As Criminal Scam], Charles Hugh Smith</ref><ref>[http://blog.mises.org/18590/roubini-thoroughly-confused-by-austrian-economics/ Roubini Confused], Justin Ptak</ref> Arguably this would be supported by the "just acquisition" jurisprudence of legal philosopher [[Robert Nozick]] and Libertarian advocate [[Murray Rothbard]].<ref name="Repudiating the National Debt"/> As Murry Rothbard states:<ref>[http://angloaustria.blogspot.com/2010/05/quote-of-day-on-repudiation.html The Ethics of Liberty], Murray Rothbard</ref>

{{quote|Many libertarians fall into confusion on specific relations with the State, even when they concede the general immorality or criminality of State actions or interventions. Thus, there is the question of default, or more widely, repudiation of government debt. Many libertarians assert that the government is morally bound to pay its debts, and that therefore default or repudiation must be avoided. The problem here is that these libertarians are analogizing from the perfectly proper thesis that private persons or institutions should keep their contracts and pay their debts. But government has no money of its own, and payment of its debt means that the taxpayers are further coerced into paying bondholders. Such coercion can never be licit from the libertarian point of view. For not only does increased taxation mean increased coercion and aggression against private property, but the seemingly innocent bondholder appears in a very different light when we consider that the purchase of a government bond is simply making an investment in the future loot from the robbery of taxation.}}

In late 2010, financial commentator Max Keiser started the [[Buy Silver Crash JP Morgan Campaign 2010]] in an attempt to expose the flaws underlying the [[fractional reserve banking]] system.<ref>[http://www.youtube.com/watch?v=1zMv4Offm_8&feature=player_embedded#at=1341 Max Keiser Interview with Alex Jones]</ref><ref>[http://www.youtube.com/watch?v=_IKbAmsGey0&feature=player_embedded#at=66 Bob Chapman Silver Predictions]</ref><ref>[http://www.guardian.co.uk/commentisfree/2010/dec/02/jp-morgan-silver-short-selling-crash Want JP Morgan to crash? Buy silver], Max Keiser</ref>

Spontaneous protests against the Federal Reserve and the current financial system commenced in September 2011 across the United States and current protests can be found on the [http://www.occupytogether.org/ OccupyTogether.org] website.

====Free Banking and Full Reserve Banking====

On the issue of the required level of bank reserves, Austro-libertarians are sharply divided on the optimal solution to eliminate the price distorting and destructive forces inherent in fractional reserve banking.<ref>[http://www.thedailybell.com/29047/Anthony-Wile-Antal-Fekete-Gold-Backwardation-and-the-Collapse-of-the-Tacoma-Bridge Antal E Fekete]</ref><ref>[http://mises.org/journals/qjae/pdf/qjae13_4_2.pdf Fractional Reserve Free Banking: Some Quibbles], Philip Bagus and David Howden</ref><ref name="Cochran_Free">John P. Cochran. [http://mises.org/daily/4898 ''Free Banking''], ''Mises Daily'', review of ''Free Banking: Theory, History, and a Laissez-Faire Model'' by Larry Sechrest</ref><ref>[https://mises.org/journals/qjae/pdf/qjae15_2_3.pdf Against Monetary Disequilibrium Theory], Laura Davidson</ref>

Some Austrian scholars advocate "free banking", where banks are legally permitted to engage in fractional-reserve banking activities ''provided'' they comply with the standard laws against fraud and are not supported in any way against the possibility of bank runs and are forced into bankruptcy should they not be able to pay their debts as and when they fall due.<ref name="Cochran_Free" /> Provided depositors are clearly made aware that their demand deposits are being lent out and are not universally available for immediate withdrawal and provided there is no way in which such banks are propped up in the face of bank runs, free banking advocates do not support outlawing fractional reserve banking as embezzlement ''per se''.

Advocates of this system of banking include Lawrence White, Steven Horwitz, George Selgin, and Kevin Dowd, amongst others.<ref name="Cochran_Free" /> F.A. Hayek also advocated the de-nationalization of money production and implicitly supported a free banking financial system in some of his works on monetary reform.<ref>[http://www.mises.org/store/Free-Market-Monetary-System-A-P553.aspx?AFID=14 ''Free Market Money System''] by [[F.A. Hayek]]</ref>

Rothbardian-oriented Austrian scholars advocate "[[full reserve banking]]", considering fractional-reserve banking and the associated issuance of irredeemable paper money to be inherently fraudulent, unethical, unjust, disruptive and dysfunctional, akin to embezzlement and counterfeiting.<ref>[http://www.zerohedge.com/article/citizen-sues-atlanta-fed-based-allegation-its-issuing-federal-reserve-notes-it-has-no-intent Citizen Sues Atlanta Fed], ZeroHedge</ref><ref>[http://mises.org/journals/qjae/pdf/qjae13_4_2.pdf Fractional Reserve Free Banking: Some Quibbles], Philip Bagus and David Howden</ref><ref>See for example these [[Murray Rothbard]] articles: [http://www.mises.org/money.asp What Has Government Done to Our Money?], [http://www.mises.org/story/1829 The Case for the 100% Gold Dollar]; [http://www.lewrockwell.com/rothbard/cartelization.pdf The Fed as Cartel], [http://www.lewrockwell.com/rothbard/rothbard191.html Private Coinage], [http://www.lewrockwell.com/rothbard/rothbard190.html Repudiate the National Debt]; [http://www.lewrockwell.com/rothbard/rothbard181.html Taking Money Back], [http://www.lewrockwell.com/rothbard/rothbard163.html Anatomy of the Bank Run], [http://www.lewrockwell.com/rothbard/rothbard128.html Money and the Individual]</ref> [[Full reserve banking]] would require banks to retain in reserve all deposits that are legally available for immediate withdrawal, and permit lending only from longer-term deposits.

Advocates of this system of banking include [[Murray Rothbard]],<ref name="The Mystery of Banking">[http://www.mises.org/Books/mysteryofbanking.pdf ''The Mystery of Banking''], Murray Rothbard</ref><ref name="The Case for a 100% Gold Dollar">[http://mises.org/story/1829 The Case for a 100% Gold Dollar], Murray Rothbard</ref> [[Jesus Huerta de Soto]],<ref>[http://www.mises.org/books/desoto.pdf ''Money, Bank Credit, and Economic Cycles''], Jesus Huerta de Soto, First English edition (2006), pp. 98-114</ref> [[Jörg Guido Hülsmann]],<ref>[http://mises.org/media/4014 The Economics of Legal Tender Laws], and [[Jorg Guido Hulsmann]] (includes detailed commentary on [[central banking]], [[inflation]] and [[fractional reserve banking|FRB]])</ref><ref name=FBFB>[http://mises.org/journals/rae/pdf/RAE9_1_1.pdf Free Banking and the Free Bankers], Jörg Guido Hülsmann, Quarterly Journal of Austrian Economics (Vol. 9, No. 1)</ref><ref>[http://www.lewrockwell.com/lewrockwell-show/2011/01/04/181-hyperinflation-ahead/ Interview with Jörg Guido Hülsmann], The Lew Rockwell Show</ref> amongst others.<ref>[http://mises.org/journals/qjae/pdf/qjae13_4_2.pdf Fractional Reserve Free Banking: Some Quibbles], Philip Bagus and David Howden</ref><ref>[http://mises.org/daily/4880 The Faults of Fractional-Reserve Banking], Thorsten Polleit</ref>

Commentators David Stockman and Michael Shedlock also support the creation of full reserve postal savings banks that do not lend out money from checking accounts.<ref>[http://globaleconomicanalysis.blogspot.com.au/2013/04/stockman-fires-back-at-krugman-labeling.html David Stockman Fires Back At Krugman]</ref> According to Michael Shedlock:<ref>[http://globaleconomicanalysis.blogspot.com.au/2013/04/stockman-fires-back-at-krugman-labeling.html David Stockman Fires Back At Krugman]</ref>

<blockquote>And the solution is so easy too. Open a bank that charges nominal fees for checking and makes no loans. Such a bank would not need loan officers or other high-priced personnel. It would offer safekeeping of money and simple checking accounts for a fee.

Those who want interest on their money should have to take a risk, the risk of a possible loss.

Finally, and as I have pointed out before, lending of checking accounts is outright fraud. Checking accounts are supposed to be money available on demand, but since Greenspan authorized Sweeps in 1994, almost none of it is.</blockquote>

Most recently, in late 2010, two British MP's, Douglas Carswell and Steven Baker, sought to introduce legislation into the British Parliament that would allow depositors to decide if their money should be lent out and for what period.<ref>[http://www.telegraph.co.uk/finance/financetopics/financialcrisis/8004540/The-radical-reform-that-would-end-boom-and-bust-in-banking.html ''The Radical Reform in Banking''], Toby Baxendale, ''Daily Telegraph'', 15 Sept 2010</ref> If this legislative reform were to pass, British depositors would have the option to elect to save their money in full reserve bank accounts.

In early 2013, the idea of full reserve banking began to reappear in mainstream circles, after other "remedies" appeared to fail or only defer the next crisis, but not solve the banking "problem".<ref>[http://www.telegraph.co.uk/finance/comment/jeremy-warner/10107375/The-banking-revolution-that-would-wipe-out-Britains-debts.html Banking Revolution]</ref> Even some "establishment" economists such as Jeffrey Sachs has openly criticized unregulated fractional reserve banking, and called for a clear legislative division between heavily regulated and controlled liquidity-supplying high-reserve fractional reserve banking and open unprotected speculation, which would be subject to risk of bankruptcy.<ref>[http://www.youtube.com/watch?feature=player_embedded&v=7VOWnnEphjI Jeffrey Sachs audio]</ref>

Antal E. Fekete of the New Austrian School advocates return of real bills (which are self-liquidating debt) and criticizes the Rothbardian position opposing fractional reserve banking as impractical and ahistorical.<ref>[http://www.thedailybell.com/29047/Anthony-Wile-Antal-Fekete-Gold-Backwardation-and-the-Collapse-of-the-Tacoma-Bridge Antal E Fekete]</ref> He has stated:

<blockquote>The altercation between the American Austrians and the New Austrian School of Economics is a tragic waste of talent. We should settle our differences not by mud-slinging and by calling names, but through high level scientific debates... I sincerely hope that they accept and we can join forces in preparing the ground for the triumph of the gold standard after a brief reactionary period in history dominated by the regime of irredeemable currency.</blockquote>

====Market Money: Gold and Silver and Crypto-Currency====
In the absence of reform, many Austrians and libertarians are actively buying gold and silver and transferring savings to Bitcoin which cannot be created at the whim of governments.<ref>[http://goldinvestingnews.com/26510/peter-schiff-gold-money-fiat-currency-price-outlook-central-banks-investing.html Peter Schiff on Gold and Money]</ref><ref>[http://www.ronpaul.com/on-the-issues/fiat-money-inflation-federal-reserve-2/ Honest Money]</ref><ref>[http://www.lewrockwell.com/paul/paul125.html Fiat Paper Money], Ron Paul</ref><ref>[http://www.mogamboguru.com/writings.html Mogambo Guru]</ref><ref>[http://www.youtube.com/watch?v=O2rsQhsTTbE Max Keiser on Bitcoin]</ref> Many Austrians believe gold and silver and other essential commodities are ideal investments during this period of fiat money expansion and experimentation, as no government in the history of the world has ever escaped economic catastrophe and debasement of the currency after adopting a pure fiat money<ref>[http://historysquared.com/2012/06/26/fiat-currencies-trend-towards-their-intrinsic-value-often-rather-quickly/ Fiat Currencies Trend Towards Their Intrinsic Value]</ref><ref>[http://www.zerohedge.com/news/2013-04-05/guest-post-more-monetary-quackery More Monetary Quackery]</ref><ref>[http://goldinvestingnews.com/26510/peter-schiff-gold-money-fiat-currency-price-outlook-central-banks-investing.html Peter Schiff on Gold and Money]</ref><ref>[http://www.ronpaul.com/on-the-issues/fiat-money-inflation-federal-reserve-2/ Honest Money]</ref><ref>[http://www.lewrockwell.com/paul/paul125.html Fiat Paper Money], Ron Paul</ref><ref>[http://www.professorfekete.com/articles/AEFFiatMoneyInDeathThroes.pdf Fiat Money in Death Throes], Antal E Fekete</ref><ref>[http://www.professorfekete.com/articles%5CAEFAmericanBasesGermanyGoldBasis.pdf American Bases], Antal E Fekete]</ref> and keeping money in bank deposits is becoming increasingly risky as governments renege on promises to keep depositors' money safe.<ref>[http://truthingold.blogspot.com.au/2013/04/the-frightening-truth-about-cyprus-bail.html?showComment=1365106177301 The Truth About the Cyprus "Bail In"]</ref><ref>[http://www.zerohedge.com/news/2013-04-02/ron-paul-great-cyprus-bank-robbery The Great Cyprus Bank Robbery], Ron Paul</ref>

===Neo-Chartalism and Modern Monetary Theory===

Neo-Chartalists and associated advocates of Modern Monetary Theory (MMT) also accept that the current bank-dominated monetary system is dysfunctional, but advocate reform ''within'' the strictures of a fiat monetary system rather than looking to return to a commodity-based monetary system.<ref>[http://www.cnbc.com/id/45795986/Modern_Monetary_Theory_and_Austrian_Economics Modern Monetary Theory and Austrian Economics], John Carney</ref>

Most advocates of MMT support deficit spending to support the economy, believing governments can never go bankrupt in a fiat monetary system.

Austrians and sound money advocates criticize supporters of MMT not in their description of the current monetary system (which many Austrians consider reasonably accurate) but for their "shallow" understanding of the dangers of unfettered government spending through fiat money creation and their "naive" support of deficit spending and inflationary policies as an "easy" way out of economic crises.<ref>[http://www.soundmoneyproject.org/?p=4881 The Upside-Down World of MMT], Robert Murphy</ref><ref>[http://www.zerohedge.com/news/sean-corrigan-crucifies-mmt Sean Corrigan Crucifies MMT], ZeroHedge.com</ref>

===Debt-free fiat money===

The concept of debt-free money is most notably represented by [[Michael Rowbotham]], [[Stephen Zarlenga]] of the American Monetary Institute, Bill Still producer of the well-known ''[http://www.youtube.com/watch?v=JXt1cayx0hs Money Masters]'' videos and [[Ellen Hodgson Brown]].<ref>[http://www.youtube.com/watch?v=6MKjlPmVVK4 Bill Still on gold reserves]</ref> They advocate various forms of "pure" fiat money issuance by government, without the need for the government to issue a bond to print or issue the fiat money. More recently, mainstream economists have begun to seriously consider the issuance of debt-free money as a policy solution to the current ongoing crisis.<ref>[http://blogs.reuters.com/anatole-kaletsky/2013/02/07/a-breakthrough-speech-on-monetary-policy/ A Breakthrough Speech on Monetary Policy], Anatole Kaletsky</ref><ref>[http://krugman.blogs.nytimes.com/2013/01/07/be-ready-to-mint-that-coin/ Be Ready To Mint That Coin], Paul Krugman</ref><ref>[http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/9970294/Helicopter-QE-will-never-be-reversed.html Helicopter QE will never be reversed], Ambrose Evans-Pritchard</ref>

Currently virtually all money issued in modern economies is initially sourced from debt; in other words, it is "debt money" because it is created via some entity (government or business or individuals) borrowing fiat money into existence and the money being created by a bank before it is spent by the government or by a business or by an individual. "Debt money" is therefore money created in parallel with debt or [[Credit (finance)|credit]] via the process of [[fractional reserve banking]] or the issuance of a bond from the central bank.

"Debt-free money" is a "true" or "pure" fiat currency issued by the [[Treasury]] of a [[central government]], where there is no requirement for its eventual return as a condition of its creation (except by way of payment of taxes).<ref name="death"/> It is argued by Rowbotham and others that this would allow for the substantial lowering of tax rates, would allow public works projects to be funded cheaply, and would stimulate economic development, if the fiat money is spent sensibly on inflation-lowering long-term capital projects.<ref name="death"/>

[[Michael Rowbotham]] seeks the cancellation of "unjust" debts (such as [[third world debt]]), and, crucially and most importantly, a [[social security]] [[safety net]] involving a guaranteed minimum [[social credit|debt-free income]] (sourced from government-issued debt-free money independent of any central bank) for all citizens in the debt-based economy. Under this proposal, every adult citizen would be given a livable debt-free income transferred electronically into their [[bank account]], simply by virtue of their [[citizen]]ship. They could then use this debt-free money to pay off their [[mortgage]]s or to live, debt-free, without being compelled to work as a [[wage slavery|wage slave]] in the market economy if they chose not to. The government would finance these payments simply by ordering the private banks to accept their electronic instructions as legal tender. It would therefore not result in the expansion of [[government debt]].<ref name="death"/>

Ex-U.S. Treasury Department analyst Richard C. Cook also supports the issuance of debt-free money and zero-interest credit by the central government and has provided a detailed blueprint of monetary reform recommendations to transition to a debt-free money supply.<ref name="marketoracle.co.uk"/>

Some commentators have speculated that the issuance of massive amounts of debt-free pure fiat money is already happening, and we are currently living in a massive money printing experiment, as so-called "quantitative easing" will never be reversed.<ref>[http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/9970294/Helicopter-QE-will-never-be-reversed.html Helicopter QE will never be reversed], Ambrose Evans-Pritchard</ref> Ambrose Evans-Pritchard has warned:<ref>[http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/9970294/Helicopter-QE-will-never-be-reversed.html Helicopter QE will never be reversed], Ambrose Evans-Pritchard</ref>

{{quote|If Lord Turner's helicopters are ever needed, we can be sure that the Anglo-Saxons and the Japanese will steal a march, while Europe will be the last to move. The European Central Bank will resist monetary financing of deficits until the bitter end, knowing that such action risks destroying German political consent for the euro project.

By holding the line on orthodoxy, the ECB will guarantee that Euroland continues to suffer the deepest depression. Once the dirty game begins, you stand aside at your peril.

A great many readers in Britain and the US will be horrified that this helicopter debate is taking place at all, as if the QE virus is mutating into ever more deadly strains.

Bondholders across the world may suspect that Britain, the US and other deadbeat states are engineering a stealth default on sovereign debts, and they may be right in a sense. But they are warned. This is the next shoe to drop in the temples of central banking.}}

====Properties====
According to its proponents, government-issued debt-free fiat currency (such as debt-free notes and coins) can circulate perpetually in the economy as "stable" money and although not as secure as [[hard currency]], government-issued debt-free notes and coins (such as United States Notes and silver certificates) do not have the same effects of debt-based money (which require pertpetual interest payments to be tied to the creatin of new money).<ref>[http://www.entrewave.com/freebooks/docs/a_pdfs/gnhm.pdf Honest Money]</ref> It should be noted however that fiat currency can be a source of [[hyperinflation]] if its production is not controlled, as the government has the potential to issue unlimited amounts of fiat currency - ''provided'' it is accepted as "money" by the private banking system.<ref>[http://mises.org/books/shorthistorypapermoney.pdf A Short History of Paper Money in the United States], William M. Gouge, Mises Institute</ref> Notably, the Federal Reserve reportedly threatened not to recognize the trillion dollar platinum coin should the Obama Administration try to mint one.<ref>[http://www.buzzfeed.com/zekejmiller/the-trillion-dollar-coin-was-killed-by-the-fed Trillion Dollar Coin Killed By Fed]</ref><ref>[http://webofdebt.wordpress.com/2013/01/18/the-trillion-dollar-coin-joke-or-game-changer/#more-5323 The Trillion Dollar Coin], Ellen Hodgson Brown</ref> Debt-free notes and coins in circulation (being defined as [[Money supply#M0|M0]]) now account for a tiny fraction of the total debt-based M3 [[money supply]] in all modern debt-based economies (and debt-free M0 is also generally less than 10% of the total [[Money supply#M2|M2]] money supply in most developed economies).<ref>[http://www.dollardaze.org/blog/?post_id=00216 Global Money Supply Ratios]</ref>

Instead of [[money]] being created "indirectly" and "furtively" at the point of loan creation by the private banking system, with periodic bailouts to already-rich bankers and a "boomerang" boom-bust cycle as debt levels expand and contract, this debt-free "pure fiat" money would be created directly and openly by the democratically elected government and permanently issued to its citizenry by way of instruction to the private banking system. An example would be the coining of a trillion dollar platinum coin by the US government to pay off some of the Federal debt and continue its deficit spending in times of recession or depression. There would be no requirement for this money to returned (plus interest) and be extinguished as a condition of its creation, which is the central feature of all debt money systems.

Michael Rowbotham argues that this system of "debt-free" money issuance would not dramatically raise consumer prices (or at least would not be as inflationary or as dysfunctional as the current compounding debt-based system). He argues that this would also reduce overconsumption and the associated environmental damage associated with debt-based consumerism. It would also give individuals the free time to engage once again in non-marketable religious, artistic and recreational activities if they chose to do so.<ref name="death"/>

It is acknowledged that, in the absence of tax rates which ensure the return of this "pure" fiat to government coffers, this would be "inflationary" in the traditional sense, but proponents of debt-free fiat money issuance argue that if this "pure" government spending is directed to capital works projects and other long-term projects, this "pure" fiat money issuance would not result in excess price inflation, although it would dramatically increase base money. Michael Rowbotham argues that if bank reserve and capital ratios were increased and bank regulations on derivatives were imposed ''at the same time'' as the increase in "pure" base money was occurring, the two policies would balance each other out and no appreciable price inflation would be felt by the public at large.<ref name="death"/> The increase in base money would be inflationary, but the increase in reserve requirements would be deflationary, resulting in no significant net increase in the total money supply (assuming the government was sufficiently skilled in balancing these forces through the transition to a predominantly debt-free monetary system).

It is to be expected that these policies would be violently opposed by the private banking "elite", as it would render impotent their control over the money supply, dissipating this crucial decision-making power away from its current power base, from private banks to elected governments.<ref>[http://www.thenewamerican.com/economy/economics/item/14238-obama%E2%80%99s-trillion-dollar-coin-exposes-federal-reserve-scam Obama’s Trillion-Dollar Coin Exposes Federal Reserve Scam], Alex Newman, ''New American''</ref><ref>[http://webofdebt.wordpress.com/2013/01/18/the-trillion-dollar-coin-joke-or-game-changer/#more-5323 The Trillion Dollar Coin], Ellen Hodgson Brown</ref> It would also be likely to reduce [[economic growth]], dramatically increase the cost of labor and, potentially, result in an exacerbation of price inflation and malinvestment.<ref>[http://globaleconomicanalysis.blogspot.com/2010/12/fatally-flawed-end-fed-proposal-from.html Fatally Flawed End the Fed Proposal], MISH</ref> However, Rowbotham, Zarlenga and Still all argue that this proposal would address the problem of inequality inherent in a debt-based monetary system and reduce the devastating impact of personal [[bankruptcy]] and allow individual citizens to quickly recover from financial hardship.<ref name="death"/> They also argue that this social security measure (and government spending in general) would not have to be paid for by future generations from future streams of [[income tax]].<ref name="death"/>

====Criticism of "Greenbacker" debt-free money issuance====
In late 2010, [[Ellen Hodgson Brown]] and Austrian School commentator [[Gary North]] engaged in an intense debate over the direction of [[monetary reform]], with gold-standard supporter [[Gary North]] accusing Brown of going down a path that inevitably leads to the economics of fascism and hyperinflation.<ref>[http://www.lewrockwell.com/north/north908.html Criticism of Ellen Hodgson Brown]</ref><ref>[http://www.lewrockwell.com/north/north912.html Ellen Betrays], Gary North</ref> Government deficit spending funded with either paper money or compliant public bank lending is not a substitute for private consumption due to the inability of coercive goverment to invest rationally long-term, given the [[economic calculation problem]] inherent in socialized economies and the interests of governments and politicians being very different from the average consumer.<ref>[http://dailyreckoning.com/downside-after-the-returns-stop-diminishing-part-ii/ Nazi Germany], Bill Bonner</ref> North argues that it is not possible to trust a coercive, non-market entity - government - to limit its spending in circumstances where pure fiat money is in the hands of politicians and that [[inflation]], being an invisible tax, is much harder to resist than regular taxes. Greedy, corrupt, short-sighted politicians could buy off special interest groups to get elected and the general public could only watch on the sidelines as the purchasing power of their dollars steadily declines; this decline would be blamed on currency speculators and eventually foreign currencies (including "natural" monies such as gold and silver and copper) would have to be banned and confiscated from the public to ensure continued use of depreciating fiat.<ref name="North_Congress">Gary North. [http://www.garynorth.com/public/7030.cfm "Economic Error #15: Congress Can Safely Be Trusted to Manage the Money System Without Any Price Inflation."]. Referenced 2011-02-24.</ref> The fundamental error of Brown's analysis, according to North, is that Brown expects the source of the problem - corrupt governments bought and paid for by bankers - to be the source of the solution. She calls for a move away from war spending, whilst recoginizing that the current fiat monetary system favors government spending on war.<ref>[http://www.marketoracle.co.uk/Article28831.html More Efficient Ways to Stimulate Economy], Ellen Hodgson Brown</ref> To date, she has yet to reconcile these inconsistencies in her writings.

[[Mike Shedlock]] agrees with the abolition of fractional reserve banking, but criticizes the concept on similar grounds as North. Commenting on a bill to end the Fed introduced by Representative [[Dennis Kucinich]], he wrote: "Neither sound money nor the free market comes from printing money into existence. Arguably the only thing worse than the Fed printing money out of thin air is Congress printing money out of thin air for the purpose of full employment and/or any other absurd ideas Congress has."<ref>[http://www.marketoracle.co.uk/Article25175.html Kucinich's End the Fed campaign fatally flawed], Mike Shedlock.</ref>

Peter Schiff also believes getting rid of the Fed and returning money issuance to Congress would be worse than the current system.<ref>[http://www.youtube.com/watch?v=kEDmj3qocag Doug Casey Interview with Peter Schiff]</ref>

Austrians criticize leftists' inability to see that printing money and government spending is not the same as voluntary spending by private individuals as government spending distorts the capital structure; does not result in lasting economic growth due to the [[economic calculation problem]]; and is not subject to normal cautious profit and loss considerations given that the government can continually recover from errors by simply printing the money it spends.<ref>[http://www.marketoracle.co.uk/Article28831.html More Efficient Ways to Stimulate Economy], Ellen Hodgson Brown</ref><ref>[http://www.youtube.com/watch?v=qDKvSMZNgjc Peter Schiff Rips Paul Krugman]</ref> They also avoid or ignore the fact that historically governments have often acted in their own self-interest and concentrated power in themselves and their corrupt associates and families rather than benignly ruling for the benefit of the populace and their long-term interests. Every sovereign - without exception - that has been given the unfettered power to print fiat money has eventually printed too much debt-free money and in the end had to ban competing currencies (such as foreign currency or metallic money), and face revolt, revolution, hyperinflation or other social catastrophe.<ref>[http://www.marketoracle.co.uk/Article39762.html Fiat Currency Collapse]</ref>

====Debt-free money issuance: Support from free market Austrians====
In contrast to Gary North's attacks on "Greenbacker" Ellen Hodgson Brown, and Mike Shedlock's criticism of debt-free money printing by Congress as the worst of all choices, noted Austrian monetary economist Joseph Salerno has voiced his support for the idea of debt-free money issuance ''in comparison to the current debt-based system'', if a choice is to be made between the two.<ref>[http://www.mises.org/daily/6350/The-Flipside-of-the-Trillion-Dollar-Coin The Flipside of the Trillion Dollar Coin]</ref> In his defense of the trillion dollar coin idea, he states the following:<ref>[http://www.mises.org/daily/6350/The-Flipside-of-the-Trillion-Dollar-Coin The Flipside of the Trillion Dollar Coin]</ref>

{{quote|Let me be clear: my intention is not to deny that the trillion-dollar coin is a ludicrous and dangerous idea; it is rather to point out that the Fed is a more ludicrous and dangerous idea.}}

In relation to the "dangers" of Congressional control of the money supply, Salerno responds as follows:<ref>[http://www.mises.org/daily/6350/The-Flipside-of-the-Trillion-Dollar-Coin The Flipside of the Trillion Dollar Coin]</ref>

{{quote|Obviously, congressional control of the fiat money supply is far from the ideal monetary system, which involves the complete separation of government and money through the establishment of a commodity money, such as gold, the supply of which is determined exclusively by market forces. Nonetheless, there is much merit in replacing the opaque and pseudo-scientific control of "the money supply process" by the entrenched bureaucrats of the Fed with overtly political control of money by elected officials and partisan Administration appointees.}}

Salerno outlines a number of advantages of "simple inflation" over the current debt-based round-about system of money creation:<ref>[http://bastiat.mises.org/2013/05/bring-on-the-helicopter-money-and-gut-the-fed/ Bring on the Helicopter Money - and Gut the Fed], Joseph Salerno</ref>

{{quote|...as a permanent policy, it would be a wonderful device for wresting control of monetary policy from un-elected, secretive, and pseudo-scientific Fed bureaucrats and placing it under a Congress subject to popular scrutiny and elections. Of course this would not be an ideal system, which would be a hard money consisting of a market supplied commodity like gold. But it would have a number of significant advantages over the present Fed-dominated system. First, as just noted, money creation by Congress would be far more transparent and understandable to the public than the arcane procedures by which the Fed expands the money supply. Second, the injection of new money directly into the economy via government purchases of goods and services would avoid the continual and systematic distortion of financial markets and the interest rate currently caused by Fed open market operations. This process of “simple inflation” as Mises called it would, therefore, certainly produce rising prices but would not generate business cycles of recurring booms and busts. Finally, the Fed could no longer operate as a bailer-outer of last resort, surreptitiously bailing out gigantic domestic and foreign financial institutions in the absence of discussion and consent by Congress and the knowledge of the public.}}

===Public Fractional Reserve Banks===

[[Ellen Hodgson Brown]] supports nationalization of the private banking system once the full losses on the banks' portfolios are recognized.<ref>[http://www.huffingtonpost.com/ellen-brown/restoring-economic-sovere_b_823697.html Restoring Economic Sovereignty], Ellen Hodgson Brown</ref><ref>[http://www.webofdebt.com/articles/new_theory.php Time for a New Theory of Money]</ref><ref>[http://globaleconomicanalysis.blogspot.com/2011/01/steve-keen-responds-to-world-economic.html Exponential Growth], MISH</ref><ref>[http://www.webofdebt.com/articles/force_nationalization.php Foreclosuregate could force bank nationalization]</ref><ref>[http://webofdebt.wordpress.com/2010/12/22/austerity-fails-in-euroland-time-for-some-%e2%80%9cdeficit-easing%e2%80%9d/ Austerity Fails in Europe], Ellen Hodgson Brown</ref> Ellen Hodgson Brown has repeatedly called for the creation of publicly-owned banks similar to the North Dakota model, where the interest earned by these state government-owned banks could be ploughed back into local economies financing public works and local government services instead of being sucked out of local communities into the major commercial banks.<ref>[http://www.marketoracle.co.uk/Article29338.html Why Aren't Banks Lending], Ellen Hodgson Brown</ref> <ref>[http://www.marketoracle.co.uk/Article39053.html Why Bankers Rule the World]</ref> She has cited numerous historical examples where public banks worked successfully for many decades, including in Australia and Costa Rica, as examples of the viability and benefit of public fractional reserve banks.<ref>[http://www.webofdebt.com/articles/commonwealth_bank_aus.php CBA]</ref><ref>[http://www.truthdig.com/report/item/public_banking_in_costa_rica_a_remarkable_little-known_model_20131111 Costa Rica]</ref>

Brown also supported "[[Quantitative easing|QE2]]" - which she described as a necessary and desirable funding of government spending via money printing rather than by the indirect means of issuing of interest-bearing government bonds, which simply allows private bankers to profit from costless money creation.<ref>[http://www.marketoracle.co.uk/Article24443.html QE2 and the Looming Threat of a Crippling Debt Service]</ref><ref>[http://www.marketoracle.co.uk/Article24719.html QE2 and Hyperinflation], Ellen Hodgson Brown</ref>

Many monetary reformers who call on the government to take back the money creation function from debt-supplying private for-profit banks also call for full reserve banking to remove the bank's alleged "embezzlement" and "counterfeiting" abilities.<ref>[http://www.thenewamerican.com/economy/economics/item/14238-obama%E2%80%99s-trillion-dollar-coin-exposes-federal-reserve-scam Obama’s Trillion-Dollar Coin Exposes Federal Reserve Scam], Alex Newman, ''New American''</ref><ref name="marketoracle.co.uk"/><ref>[http://www.monetary.org/ AMI website, calling on full-reserve banking]</ref>

It should be noted that if Austrian claims that [[fractional reserve banking]] produces [[Austrian business cycle theory|business cycles]] is correct, public ownership of banks will not stop periodic economic crises and business cycles from occurring, ''unless'' strong controls and very high reserve ratios are imposed on all banks. Many would consider this "solution" of publicly-owned fractional reserve banks merely perpetuating the problem.

Stephen Zarlenga's AMI organization has strongly criticized Brown's support of fractional reserve banking as perpetuating the very problems she seeks to solve. Jamie Walton, from the AMI, wrote the following review:<ref>[http://www.monetary.org/review-of-ellen-browns-the-web-of-debt/2010/12/ Review of Web of Debt], Jamie Walton</ref>

{{quote|Brown’s plan to takeover (rescue?) the big banks to continue a “fraud” within the safety of government is totally wrong. Placing the “fraud” in government doesn’t make it right, but might make it harder to stop. Does Brown realize that her statements and conclusions are inconsistent, and that what she proposes leads to exactly the same things that she’s claiming to be opposed to?

Experience shows that if the issue of money is unduly affected by commercial incentives, then, over time, “commercial loans” (i.e., debt) will dominate over more direct methods of issue. So we’d be kept in exactly the same position we’re in now: within a totally unnecessary, ever-growing and impossible-to-pay debt trap.

Obviously the sensible action to take is to remove the “fraud” and debt and retain a healthy and competitive banking sector. This is easily done with a law based on the existing provisions in the U.S. Constitution.

But Brown avoids this obvious solution and instead advocates that our government gets into banking.

It seems incredible that Brown is now advocating what she’s described throughout most of the book as fraud, counterfeiting and Ponzi, pyramid or ‘smoke-and-mirrors’ schemes. Why? Perhaps the answer lies in Brown’s apparent confusion and/or fundamental misunderstandings about the nature of money and the role of government in society, and about monetary history and monetary reform.}}

===Left-leaning ideas===
The highly successful "Icelandic Solution" of debt relief for the poor and criminal sanctions against corrupt bankers was implemented by a left-wing government<ref>[http://www.zerohedge.com/news/2013-01-26/only-3-minutes-worth-listening-davos Interview with Iceland's President Olafur Ragnar Grimson]</ref> although some question whether the policies truly reflected left-wing ideas given the constraints on Icelandic policy-making at the time.<ref>[http://reason.com/blog/2012/04/17/why-iceland-presidents-left-wing-critiqu Why Iceland President Left-Wing Critique is Right], ''Reason''</ref>

Some left-leaning [[social democrats]] would also support additional longer-term measures such as ''raising'' minimum wages immediately after a financial crisis (rather than reducing wage rates - which they argue only prolongs the depression through reduced spending), taxing the banking system and the implementation of strongly redistributive income and [[land tax]]es to ensure the financially dispossessed are "replenished" with income. They would also support a [[social security]] [[safety net]] involving the provision of unemployment benefits and government-supplied free medical care, education and other essential services and [[public goods]].<ref>[http://www.youtube.com/watch?v=g4yVhxDTom0 Steve Keen interview with Max Keiser]</ref> It is to be expected however that this coercive regulatory regime would result in the systematic destruction of the entrepreneurial class as profits are squeezed by rising costs. In addition, without the issuance of debt-free [[fiat currency]] the result of these programs would be the persistent, exponential, accumulation of [[government debt]], financed by the [[private banking]] system by the issuance of [[government bonds]]. If not properly managed, this could result in a progressively higher tax burden and may result in higher [[interest rates]] in the long term, as financiers require higher [[interest rates]] to lend to the increasingly indebted central government. Without the issuance of [[debt-free money]] these policies can be self-defeating, with the net result simply being that a larger stream of guaranteed income goes to the [[private bank]]ing system via the issuance of interest-bearing [[government bonds]] (which are purchased by the [[private banks]] "out of nothing" through [[fractional reserve banking]] techniques). This [[government debt]] must then be financed in perpetuity by compulsorily acquired [[tax]]es from future generations.

It could be argued that the early success of extreme so-called "right-wing" (but socialist government-guided) [[fascism]] in [[Nazi Germany]] and [[Italy]] in the period after [[World War I]] was a response to the economic chaos created by the debt-based monetary system in early 20th century [[Europe]]. Some of the economic policies introduced by [[Hitler]] and [[Mussolini]] were in direct response to the economic collapse and social [[anarchy]] caused by soaring government and personal debt levels in both countries in the post-[[Versailles Treaty]] era, and (indirectly) arose from the writings of [[Silvio Gesell]] and others on the nature of the problems associated with a debt-based [[monetary system]]. Although many [[historian]]s justifiably criticize many of the non-economic policies of the [[fascist]] governments of [[Germany]] and [[Italy]] during this period, the [[economics of fascism]] seemed to provide a degree of [[prosperity]] to the populace, and arguably achieved the government's stated objective of restoring economic and social order during the pre-[[World War II]] era.<ref>[http://www.webofdebt.com/articles/bankrupt-germany.php How a Bankrupt Germany Solved its Economic Problems], Ellen Hodgson Brown</ref> These economic policies and their results are the subject of vigorous debate even today.<ref name="North_National_Great">Gary North. [http://www.garynorth.com/public/7009.cfm "Historical Error #27: Hitler's National Socialist Economic Policies Ended the Great Depression in Germany."], ''GaryNorth.Com''. Referenced 2011-02-24.</ref> (See also [[Inflation in Nazi Germany]].)

Similarly it could be argued that [[socialism]] and [[communism]] were movements inspired by the inequalities caused by the intense (and in [[Karl Marx]]'s view unsustainable) concentrations of monetary wealth, power and influence inherent in the practice of [[fractional reserve banking]] in a [[laissez-faire]], [[monopoly]] [[capitalist]] environment (particularly when [[fractional reserve banking]] is combined with a [[gold standard]] or other [[hard currency]] [[monetary system]]).<ref>[http://www.zerohedge.com/news/2013-11-07/marc-faber-warns-karl-marx-was-right Karl Marx Was Right], Marc Faber</ref><ref>[http://www.nakedcapitalism.com/2009/02/steve-keen-roving-cavaliers-of-credit.html ''Roving Cavaliers of Credit'', Steve Keen, with commentary from Yves Smith at Naked Capitalism]</ref>

The [[communist]]/[[socialist]] solution to the problem of [[fractional reserve banking]] is simple: re-enfranchising workers through widespread organization and unionism, complete removal (and if necessary, violent non-democratic removal) of the allegedly "parasitic" financial, capitalist and upper classes, wholesale repudiation of [[government debt]] resulting in complete debt [[default]]; forced [[expropriation]] of [[land]] and wealth from the [[upper classes]] to the dispossessed and needy [[working classes]]; [[nationalization]] of the [[private banks]] (which has required armed [[coup]]s by the [[military]] in some past [[revolution]]s); and the return of the banking function from a dominant, speculative to a subordinate, administrative institution, where the banking system is reduced to a subservient arm of the centralized [[Leviathan]].<ref>[http://www.zerohedge.com/news/2013-11-07/marc-faber-warns-karl-marx-was-right Karl Marx Was Right], Marc Faber</ref> In this system, government-owned banks are directed by government policy; often provide different kinds of loans to different industry sectors at different interest rates depending on the perceived "needs" of the economy and the community; normally have a significant proportion of [[non-performing loan]]s due to weak or non-existent [[bankruptcy]] laws; and periodically "forgive" failed debts in recognition of the impossibility of some businesses in paying this debt money back. In addition, individuals are prohibited from possessing large property holdings, in excess of their individual needs.

It is to be expected that the [[profitability]] of the government-owned banking system would be more stable - but dramatically lower - than that in a debt-based [[capitalist]] economy. It is also to be expected that a significantly higher misallocation of resources could occur in this system, where lending decisions are "infected" by political considerations and are not made on the basis of expected [[return on investment]]. The risk of [[corruption]] in the banking system is also expected to be higher where there is no separation between the political and monetary systems in an economy. Market-oriented [[monetary reform]]ers and [[neo-classical]] economists therefore do not support [[nationalization]] of the [[private banking]] system.

It should be noted that partial [[nationalization]] of the [[private bank]]ing system would only be temporary, as any remaining [[private banks]] could still engage in unlimited [[fractional reserve banking]] and facilitate the eventual acquisition and control of any strategic assets in a partially socialized economic system. It is to be expected that in the absence of complete [[nationalization]] of the banking system, the [[private bank]]ing system would eventually dominate the financial system in any nominally [[socialist]] society.

==Corporatism, Crony Capitalism and Confiscation==
Assuming current trends continue, "Corporatism",<ref>[http://www.lewrockwell.com/2010/04/ron-paul/dont-call-obama-a-socialist/ Corporatism], Lew Rockwell</ref> "Rigged Market Capitalism",<ref>[http://maxkeiser.com/tag/rigged-market-capitalism/ Rigged Market Capitalism]</ref> or so-called "Crony Capitalism"<ref>[http://mises.org/daily/6540/The-American-Economy-is-Not-a-FreeMarket-Economy Crony Capitalism in America]</ref><ref>[http://www.zerohedge.com/news/2013-02-10/guest-post-note-fed-giving-banks-free-money-wont-make-us-hire-more-workers Note To Fed]</ref> will continue.<ref>[http://www.youtube.com/watch?v=zbQq33iTsrw Rigged bank rates]</ref> This means superficial respect for property rights but periodic confiscation when deemed necessary by a government-banker cabal who consider themselves above [[natural law]].<ref>[http://www.zerohedge.com/news/2013-09-18/why-obama-allowed-bailouts-without-indictments Why Obama Allowed Bailouts]</ref> This implies ongoing "immunity" for market manipulating banks on the basis that they are "too big to jail",<ref>[http://moneymorning.com/2012/12/28/too-big-to-jail-its-a-dark-day-for-the-rule-of-law/ Too Big To Jail]</ref><ref>[http://www.rollingstone.com/politics/news/gangster-bankers-too-big-to-jail-20130214 Gangser Bankers: Too Big to Jail], Matt Taibbi. Extract: 'At HSBC, the bank did more than avert its eyes to a few shady transactions. It repeatedly defied government orders as it made a conscious, years-long effort to completely stop discriminating between illegitimate and legitimate money. And when it somehow talked the U.S. government into crafting a settlement over these offenses with the lunatic aim of preserving the bank's license, it succeeded, finally, in making crime mainstream. UBS, meanwhile, was a similarly elemental case, in which the offenses didn't just violate the letter of the law – they threatened the integrity of the competitive system. If you're going to let hundreds of boozed-up bankers spend every morning sending goofball e-mails to each other, giving each other superhero nicknames while they rigged the cost of money (spelling-challenged UBS traders dubbed themselves, among other things, "captain caos," the "three muscateers" and "Superman"), you might as well give up on capitalism entirely and just declare the 16 biggest banks in the world the International Bureau of Prices. Thus, in the space of just a few weeks, regulators in Britain and America teamed up to declare near-total surrender to both crime and monopoly. This was more than a couple of cases of letting rich guys walk. These were major policy decisions that will reverberate for the next generation. Even worse than the actual settlements was the explanation Breuer offered for them. "In the world today of large institutions, where much of the financial world is based on confidence," he said, "a right resolution is to ensure that counter-parties don't flee an institution, that jobs are not lost, that there's not some world economic event that's disproportionate to the resolution we want." In other words, Breuer is saying the banks have us by the balls, that the social cost of putting their executives in jail might end up being larger than the cost of letting them get away with, well, anything. This is bullshit, and exactly the opposite of the truth, but it's what our current government believes. From JonBenet to O.J. to Robert Blake, Americans have long understood that the rich get good lawyers and get off, while the poor suck eggs and do time. But this is something different. This is the government admitting to being afraid to prosecute the very powerful – something it never did even in the heydays of Al Capone or Pablo Escobar, something it didn't do even with Richard Nixon. And when you admit that some people are too important to prosecute, it's just a few short steps to the obvious corollary – that everybody else is unimportant enough to jail. An arrestable class and an unarrestable class. We always suspected it, now it's admitted.'</ref> and the continued collusion of central banks with private banks to manipulate an increasing number of financial and commodity markets in a futile effort to control capitalism for their own survival, eventually destroying any semblance of functioning capitalism resulting in an increasingly volatile financial system.<ref>[http://www.zerohedge.com/news/2013-04-26/illuminati-were-amateurs-matt-taibbi-explains-how-everything-rigged The Illuminati Were Amateurs], Matt Taibbi. Extract: "Conspiracy theorists of the world, believers in the hidden hands of the Rothschilds and the Masons and the Illuminati, we skeptics owe you an apology. You were right. The players may be a little different, but your basic premise is correct: The world is a rigged game. We found this out in recent months, when a series of related corruption stories spilled out of the financial sector, suggesting the world's largest banks may be fixing the prices of, well, just about everything."</ref><ref>[http://www.youtube.com/watch?v=zbQq33iTsrw Rigged bank rates]</ref> Some believe we have already reached this point where world financial markets are completely artificial and prices in many markets no longer reflect reality.<ref>[http://www.youtube.com/watch?v=zbQq33iTsrw Rigged bank rates]</ref><ref>[http://www.gata.org/node/7096 Fed's blueprint for market manipulation]</ref> Even former Fed officials now admit QE simply involves newly created money being gifted to large Wall Street banks at the expense of the general population.<ref>[http://www.zerohedge.com/news/2013-11-12/former-fed-quantitative-easer-confesses-aplogizes-i-can-only-say-im-sorry-America I am sorry America]. Quote: 'In its almost 100-year history, the Fed had never bought one mortgage bond. Now my program was buying so many each day through active, unscripted trading that we constantly risked driving bond prices too high and crashing global confidence in key financial markets. We were working feverishly to preserve the impression that the Fed knew what it was doing... Trading for the first round of QE ended on March 31, 2010. The final results confirmed that, while there had been only trivial relief for Main Street, the U.S. central bank's bond purchases had been an absolute coup for Wall Street. The banks hadn't just benefited from the lower cost of making loans. They'd also enjoyed huge capital gains on the rising values of their securities holdings and fat commissions from brokering most of the Fed's QE transactions. Wall Street had experienced its most profitable year ever in 2009, and 2010 was starting off in much the same way. You'd think the Fed would have finally stopped to question the wisdom of QE. Think again. Only a few months later—after a 14% drop in the U.S. stock market and renewed weakening in the banking sector—the Fed announced a new round of bond buying: QE2. Germany's finance minister, Wolfgang Schäuble, immediately called the decision "clueless." That was when I realized the Fed had lost any remaining ability to think independently from Wall Street. Demoralized, I returned to the private sector. Where are we today? The Fed keeps buying roughly $85 billion in bonds a month, chronically delaying so much as a minor QE taper. Over five years, its bond purchases have come to more than $4 trillion. Amazingly, in a supposedly free-market nation, QE has become the largest financial-markets intervention by any government in world history.'</ref> Ongoing purchases of government bonds by central banks continue every month, keeping interest rates artificially low and allowing government spending to continue to expand, along with a volatile heavily indebted private economy.<ref>[http://www.youtube.com/watch?v=G1l7DY8kdz0 The Fed Unspun]</ref> If these "emergency" QE measures continue indefinitely this will eventually result in indefinite depression as markets are manipulated beyond the control even of the central banks, prohibiting market "clearing" and prohibiting the reallocation of resources away from the government and financial sectors.<ref>[http://prudentbear.com/index.php/guestcommentaryview?art_id=10742 Bernanke's Balance Sheet Ensures Disaster], Michael Pento</ref><ref>[http://www.zerohedge.com/news/2013-01-26/only-3-minutes-worth-listening-davos Interview with Iceland's President Olafur Ragnar Grimson]</ref><ref>[http://www.zerohedge.com/news/2013-02-06/guest-post-all-well All Is Well], Jim Quinn</ref><ref>[http://www.youtube.com/watch?v=zbQq33iTsrw Rigged bank rates]</ref> Recent events in Cyprus and Greece are an indication of what will happen in other countries should the current system continue - periodic financial crises and bank runs from capital controls on marginal economies resulting in impoverishment of the general populace.<ref>[http://www.marketoracle.co.uk/Article39809.html Greece vs Iceland]</ref><ref>[http://www.zerohedge.com/news/2013-03-22/ecb-set-fair-cypriot-standard-living-capital-controls Capital Controls]</ref> Without debt relief, "following the rules" of debt will mean that the government will have to steal simply to pay back creditors.<ref>[http://www.marketoracle.co.uk/Article39732.html Cyprus Wealth Confiscation Scheme]</ref> Ultimately, with a compliant populace, bankers and governments will periodically, without warning, "steal", "tax" or otherwise confiscate deposits, savings and wealth to keep the financial system alive, whilst continuing to try grow the money supply through fractional reserve banking.<ref>[http://www.zerohedge.com/news/2013-03-22/ecb-set-fair-cypriot-standard-living-capital-controls Capital Controls]</ref>
Without reform or revolution, this perverted Keynesian<ref>[http://mises.org/journals/fm/January2013.pdf Two Sides of the Same Debased Coin], Hunter Lewis</ref> "upside down" combination of "socialism for the rich and capitalism for the poor" will inevitably result in chronic cascading "supply" crises in commodity markets as price signals no longer "work" due to market manipulation and price "smoothing" stifling price rises that must occur for production of essential commodities to remain profitable, thereby ultimately resulting in actual supply and demand mismatches in many essential commodity markets (such as the gold and silver markets).<ref>[http://www.marketoracle.co.uk/Article38893.html Shock Year 2013]</ref><ref>[http://www.zerohedge.com/news/2013-02-09/guest-post-us-economy-now-dangerously-detached-reality US Economy Detached From Reality]</ref> This will ultimately produce a tiny (but massively wealthy) speculative banker class,<ref>[http://www.zerohedge.com/news/2013-04-03/david-stockman-keynesian-endgame The Keynesian Endgame], David Stockman</ref><ref>[http://www.zerohedge.com/news/2013-02-06/guest-post-all-well All Is Well], Jim Quinn</ref> a bloated and ineffective government sector, a private sector that mainly services lucrative government contracts (or is otherwise starved of capital and funding) and the complete destruction of the middle class, resulting in a steadily increasing disenfranchised, desperate, intergenerational underclass.<ref>[http://www.zerohedge.com/news/2013-06-17/rotting-decaying-and-bankrupt-%E2%80%93-if-you-want-see-future-america-just-look-Detroit America's Future is Detroit]</ref><ref>[http://www.zerohedge.com/news/2013-02-06/guest-post-all-well All Is Well], Jim Quinn</ref><ref>[http://www.globalresearch.ca/western-civilization-and-the-economic-crisis-the-impoverishment-of-the-middle-class/18386 Western Civilization and the Economic Crisis]</ref><ref>[http://www.youtube.com/watch?v=DVxyGxEcMqQ Max Keiser on the UK Economy]</ref><ref>[http://mises.org/journals/fm/January2013.pdf Two Sides of the Same Debased Coin], Hunter Lewis</ref><ref>[http://www.youtube.com/watch?v=zbQq33iTsrw Rigged bank rates]</ref><ref>[http://www.zerohedge.com/news/2013-04-03/david-stockman-keynesian-endgame The Keynesian Endgame], David Stockman</ref><ref>[http://www.marketoracle.co.uk/Article39449.html An Orwellian America], Gordon T Long</ref>

David Stockman has the following comments in relation to the current monetary system:<ref>[http://mises.org/daily/6397/The-Keynesian-Endgame The Keynesian Endgame]</ref>

<blockquote>Accordingly, the central banking branch of the state remains hostage to Wall Street speculators who threaten a hissy fit sell-off unless they are juiced again and again. Monetary policy has thus become an engine of reverse Robin Hood redistribution; it flails about implementing quasi-Keynesian demand–pumping theories that punish Main Street savers, workers, and businessmen while creating endless opportunities, as shown below, for speculative gain in the Wall Street casino.

At the same time, Keynesian economists of both parties urged prompt fiscal action, and the elected politicians obligingly piled on with budget-busting tax cuts and spending initiatives. The United States thus became fiscally ungovernable. Washington has been afraid to disturb a purported economic recovery that is not real or sustainable, and therefore has continued to borrow and spend to keep the macroeconomic “prints” inching upward. In the long run this will bury the nation in debt, but in the near term it has been sufficient to keep the stock averages rising and the harvest of speculative winnings flowing to the top 1 percent.

The breakdown of sound money has now finally generated a cruel endgame. The fiscal and central banking branches of the state have endlessly bludgeoned the free market, eviscerating its capacity to generate wealth and growth. This growing economic failure, in turn, generates political demands for state action to stimulate recovery and jobs.

But the machinery of the state has been hijacked by the various Keynesian doctrines of demand stimulus, tax cutting, and money printing. These are all variations of buy now and pay later—a dangerous maneuver when the state has run out of balance sheet runway in both its fiscal and monetary branches. Nevertheless, these futile stimulus actions are demanded and promoted by the crony capitalist lobbies which slipstream on whatever dispensations as can be mustered. At the end of the day, the state labors mightily, yet only produces recovery for the 1 percent.</blockquote>

Paul Krugman has criticized David Stockman's analysis of rising debt levels.<ref>[http://krugman.blogs.nytimes.com/2013/04/03/debt-and-david-stockman/ Debt and David Stockman]</ref> Others have criticized Paul Krugman's analysis.<ref>[http://lewrockwell.com/anderson/anderson362.html Should Government Try to Extend Booms Indefinitely?]</ref> Paul Krugman's argument (essentially) is that debt does not matter because we (mostly) owe it to ourselves, but he never advocates repudiation or cancellation of the debt on the same basis.

==Status under current systems==
Whatever their political leanings, nearly all [[monetary reform]]ers agree that the current financial and economic system imposed on the populace by governments worldwide, involving coercive legal tender laws,<ref>[http://lewrockwell.com/paul/paul766.html Legalize Currency Competition], Ron Paul</ref> the perpetuation of government-protected private banks (organizations legally permitted to engage in unlimited and inherently speculative fractional-reserve banking activities during boom times, with recourse to monopoly central banks - and in some cases corrupt governments<ref>[http://www.prudentbear.com/index.php/thebearslairview?art_id=10513 The Evils of Crony Capitalism], Martin Hutchinson</ref><ref>[http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100008812/irelands-debt-servitude/ Ireland's Debt Servitude], Ambrose Evans-Pritchard, UK Telegraph</ref> - to provide bail outs of fiat money during downturns), "deregulated" labor markets (which have the effect of increasing the marketization and commodification of human activity), strictly enforced bankruptcy laws (which permit the periodic transfer of assets from failed bankrupt investors caught at the end of "Ponzi-scheme" cycles to the private banks and their associates) and personal income tax (which, combined with periodic economic collapses, dispossesses the majority of the populace from their accumulated income and wealth and transfers this wealth to the owners of illicit government bonds) amounts to an inherently unstable, unjust and dysfunctional financial system resulting in environmentally damaging over-consumption and massive worldwide [[malinvestment]]s,<ref>[http://www.mises.org/daily/6578/Central-Banks-The-True-Centers-of-Political-Power Central Banks]</ref> the systematic and irredeemable destruction of fertile arable land,<ref>[http://www.huffingtonpost.co.uk/2011/09/27/natural-resources-being-e_n_982576.html Natural Resources Being Exhausted]</ref> and the government-sponsored (and ultimately unsustainable) oppression of the indebted, impoverished and economically enslaved majority.<ref>[http://www.zerohedge.com/news/2013-02-06/guest-post-all-well All Is Well], Jim Quinn</ref><ref>[http://www.thenewamerican.com/economy/economics/item/14238-obama%E2%80%99s-trillion-dollar-coin-exposes-federal-reserve-scam Obama’s Trillion-Dollar Coin Exposes Federal Reserve Scam], Alex Newman, ''New American''</ref><ref>[http://mises.org/daily/4893 ''The Ethics of Money Production''], Jorg Guido Hulsmann</ref><ref>[http://www.youtube.com/watch?v=QIBFvikcl7g Stacy Herbert and Max Keiser: Flaming Banks] Max Keiser Quote: "Well, ''it's slavery''. You know, they had slavery, then they outlawed slavery but in its place were the Jim Crow laws: 'Coloreds Only. Whites Only.' Then the banks got involved and they have ''financial'' Jim Crow laws. If you're black and living in the ghetto, you are charged 40, 50, 60% to borrow money. If you're white and you work on Wall Street, you're charged ''negative'' 5% to borrow money. That's a ''financial'' Jim Crow law that goes down color lines. Now the big corporations who realize America's becoming a new ''plantation of slaves'' - they're saying, 'Forget it! We don't even make a pretense that there's a "middle class". Here's a product for those living on the plantation. And here's the product for the man livin' in the Big House!'"</ref><ref>[http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/3/25_Sinclair_-_Cyprus%2C_Gold%2C_Russia_%26_A_New_Monetary_System.html Jim Sinclair Interview]. Quote: "He [Paul Craig Roberts] spoke about the banks moving to enslave humanity, and he said the Cypriots had to do whatever it took to put a stop to this."</ref><ref>[http://www.marketoracle.co.uk/Article40103.html Americans Loving Their Servitude], James Quinn</ref>

==See also==
* [[Austrian Business Cycle Theory]]
* [[Central bank]]
* [[Monetary reform]]
* [[Murray Rothbard]]
* [[Ron Paul]]

==Notes==
{{reflist|4}}

==Links==
* [http://www.thefreemanonline.org/features/taking-money-back-part-i/ Taking Money Back: Part I] by [[Murray Rothbard|Murray N. Rothbard]], September 1995
* [http://www.thefreemanonline.org/features/fractional-reserve-banking-part-ii/ Fractional Reserve Banking: Part II] by Murray N. Rothbard, October 1995 (reprinted at [[LRC]] [http://www.lewrockwell.com/rothbard/rothbard239.html here])

*[http://econpapers.repec.org/paper/wpawuwpma/0203005.htm Fractional Reserve Banking as Economic Parasitism]
*[http://www.prosperityuk.com/prosperity/links/links.html Monetary Reform websites]
*[http://www.relfe.com/plus_5_.html I want the Earth Plus 5%]
*[http://www.youtube.com/watch?v=JUFxsZF5E48&list=LLG5bLlG3NQ8sHur0Oco-CmQ&feature=mh_lolz How Our Monetary System Works and Fails]
*[http://www.youtube.com/watch?v=jqvKjsIxT_8 Money As Debt (videoplay animation)]
*[http://www.youtube.com/watch?v=swkq2E8mswI&feature=like-suggest&list=UL The Secret of Oz (documentary video)]
*[http://dailyreckoning.com/ Daily Reckoning]
*[http://jsmineset.com/ Jim Sinclair's MineSet]
*[http://www.lewrockwell.com/ LewRockwell.com]
*[http://www.marketoracle.co.uk/ Market Oracle]
*[http://maxkeiser.com/ Max Keiser]
*[http://globaleconomicanalysis.blogspot.com/ MISH]
*[http://www.prudentbear.com/ PrudentBear.com]
*[http://www.youtube.com/watch?v=Bx5Sc3vWefE 12 Year Old Victoria Grant's Speech]
*[http://www.webofdebt.com/ Web of Debt]
*[http://www.zerohedge.com/ Zero Hedge]

{{DEFAULTSORT:Criticism Of Fractional-Reserve Banking}}
[[Category:Argumentation]]
[[Category:Money]]

Criticism of fractional reserve banking

2014-01-31T01:43:58Z

Karmaisking: /* Market meddling and pushing on a string */

{{main|Fractional-reserve banking}}
'''Criticisms of [[fractional reserve banking]]''' and [[central bank|central banking]] have been put forward from a variety of perspectives, although the most vigorous and sustained criticism now comes from libertarians and anarcho-capitalists such as economists [[Jesús Huerta de Soto]] and [[Jörg Guido Hülsmann]], American politician [[Ron Paul]], and commentators such as historian Thomas Woods, Jim Grant of ''Grant's Interest Rate Observer'' and former US Budget Director David Stockman.<ref>[http://www.philippbagus.com/archivos/Working%20paper%20deposits%20loans%20and%20banking%20bagus%20howden%20block.pdf Deposits, Loans and Banking: Clarifying the Debate], Philipp Bagus, David Howden and Walter Block</ref><ref>[http://blog.mises.org/16521/fantastic-speech-by-de-soto/ Jesús Huerta de Soto Speech]</ref><ref>[http://mises.org/daily/5174/Life-with-the-Fed-Sunshine-and-Lollipops Life with the Fed], Thomas Woods</ref><ref>[http://mises.org/daily/5146/Over-to-You-H-Parker-Willis Over to you H Parker Willis], Jim Grant</ref><ref>[http://www.youtube.com/watch?v=1VcN_Z6L0jM&feature=player_embedded#at=609 James Grant Interview with James Turk]</ref><ref>[http://mises.org/daily/5113/The-End-of-Sound-Money-and-the-Triumph-of-Crony-Capitalism The End of Sound Money and the Triumph of Crony Capitalism], David Stockman, Henry Hazlitt Memorial Lecture, Austrian Scholar's Conference</ref><ref>[http://www.lewrockwell.com/orig11/stockman6.1.1.html Crony Capitalism Strikes Again], David Stockman</ref><ref>[http://www.lewrockwell.com/orig11/stockman6.1.1.html David Stockman Interview - Blame the Fed]</ref><ref>[http://www.zerohedge.com/news/2013-04-03/david-stockman-keynesian-endgame The Keynesian Endgame], David Stockman</ref><ref>[http://www.lewrockwell.com/2013/10/david-stockman/its-sundown-in-america/ Sundown in America], David Stockman</ref><ref>[http://www.lewrockwell.com/rockwell/imperative-sound-money.html The Social Imperative of Sound Money], Lew Rockwell</ref><ref>[http://lewrockwell.com/stockman/stockman16.1.html The Forgotten Cause of Sound Money]</ref><ref>[http://mises.org/daily/6397/The-Keynesian-Endgame The Keynesian Endgame]</ref> Most in the mainstream (both on the left and right) remain silent on the issue of fractional reserve banking and central banking,<ref>[http://www.lewrockwell.com/lewrockwell-show/2008/10/31/58-americas-slow-motion-fascist-coup/ Naomi Wolf Interview with Lew Rockwell], Lew Rockwell: "I've frankly never understood why people on the Left are ''not'' upset about the Federal Reserve. If you look back to the history..." Wolf: "We probably don't understand it!" Lew Rockwell:"...but you know the founding of the Fed before the law was, you know, with bipartisan support signed in 1913, the Federal Reserve Act was drafted at J.P. Morgan's private club - it's sounds like a conspiracy story, but I guess it sort of is - on Jekyll Island Georgia...Big bankers wrote the Federal Reserve Act for their benefit!"</ref><ref>[http://www.lewrockwell.com/rockwell/imperative-sound-money.html The Social Imperative of Sound Money], Lew Rockwell: "I find it sickening that there are so few voices outside the Austrian School that will stand up to this policy [of fiat money, fractional reserve banking and central banking]."</ref> although past critics have included mainstream economists such as Irving Fisher,<ref>''100% Money'', Irving Fisher</ref><ref>[http://en.wikipedia.org/wiki/A_Program_for_Monetary_Reform ''A Program for Monetary Reform'']</ref> and [[Milton Friedman]].<ref>Friedman, M., A Program for Monetary Stability, New York, Fordham University Press, 1960, pp. 65</ref><ref>[http://mises.org/daily/3108 The Social Imperative of Sound Money], Lew Rockwell: "I find it sickening that there are so few voices outside the [[Austrian School]] that will stand up to this policy (of [[fiat money]]/[[fractional reserve banking]]/[[central bank]]ing)".</ref> Within the economics profession, most criticisms are from the [[Austrian School]].<ref>[http://mises.ca/posts/blog/illogic-in-fractional-reserve-banking/ Illogic in Fractional Reserve Banking], James E. Miller</ref><ref>[http://mises.org/media/4014 The Economics of Legal Tender Laws], [[Jorg Guido Hulsmann]] (includes detailed commentary on [[fractional reserve banking|FRB]])</ref><ref>[http://mises.org/store/Money-Bank-Credit-and-Economic-Cycles-P290C0.aspx Money, Bank Credit and Economic Cycles], Jesus Huerta de Soto, Mises Institute ISBN: 978-1-933550-39-8</ref><ref>[http://mises.org/store/Meltdown-P557.aspx ''Meltdown''], Tom Woods, Regnery Press ISBN: 9781596985872</ref><ref>[http://www.marketoracle.co.uk/Article25212.html The Faults of FRB], Thorsten Polleit</ref> There are also critics from outside the economics profession who advocate [[monetary reform]].<ref>[http://www.nakedcapitalism.com/2010/12/matt-stoller-end-this-fed.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capitalism%29 End This Fed], Matt Stoller</ref><ref>For an example of the writings of these groups, see [http://www.bilderberg.org/monref.htm this] contribution from Bilderberg.org</ref><ref>[http://www.youtube.com/watch?v=VMngK0t5WkY Max Keiser]</ref><ref>[http://www.marketoracle.co.uk/Article28533.html The Global Debt Crisis], Ellen Hodgson Brown</ref><ref>[http://www.mises.org/daily/6358/The-Backroom-World-of-Central-Banking Lords of Finance]</ref>

==Terminology==

Critics of fractional reserve banking and the related fiat paper monetary system may refer to it by the term '''debt-based monetary system''',<ref>[http://www.thenewamerican.com/economy/economics/item/14238-obama%E2%80%99s-trillion-dollar-coin-exposes-federal-reserve-scam Obama’s Trillion-Dollar Coin Exposes Federal Reserve Scam], Alex Newman, ''New American''</ref><ref>[http://mises.org/daily/4631 Is Our Money Based On Debt?], Robert Murphy</ref><ref name="speech">For an example of the public use of the term, see the [http://www.prosperityuk.com/prosperity/articles/earl.html speech] of the Earl of Caithness in the House of Lords on 5 March 1997</ref> or '''credit-based monetary system'''.<ref>For example of the public use of the term, see this speech given by [[Zhou Xiaochuan]], [http://www.bis.org/review/r090402c.pdf Reform the monetary system], 23 March 2009 (BIS), and this article, [http://www.nakedcapitalism.com/2009/02/steve-keen-roving-cavaliers-of-credit.html ''Roving Cavaliers of Credit''] by Steve Keen (with commentary by Yves Smith)</ref><ref>[http://globaleconomicanalysis.blogspot.com/2010/09/myths-about-whats-economically.html Myths], MISH</ref><ref>[http://globaleconomicanalysis.blogspot.com/2010/07/are-we-trending-towards-deflation-or-in.html Deflation], MISH</ref><ref>[http://globaleconomicanalysis.blogspot.com/2008/04/deflation-in-fiat-regime.html Deflation In A Fiat Regime?], MISH</ref> They may also refer to money created in parallel with debt as '''debt money''' or '''endogenous money''', reflecting the fact that virtually all new money is currently created by people or businesses or governments further indebting themselves to banks.<ref name="death"/><ref>[http://www.debunkingeconomics.com/Papers/Money/KeenModellingEndogenousMoneyICAPE.pdf Endogenous Money], Steve Keen</ref> This monetary system is called "endogenous" because the money supply is flexible, expanding in parallel with the demand for debt and stalling or contracting when demand for debt declines.<ref>[http://www.debunkingeconomics.com/Papers/Money/KeenModellingEndogenousMoneyICAPE.pdf Endogenous Money], Steve Keen</ref> Some consider this a perverse and dysfunctional way of introducing new money into the economy.<ref name="death"/>

The term, "debt-based monetary system," and related terms such as "debt money" are not used by conventional economists. Mainstream economists often refer to "debt money" by its antonym "credit" and distinguish between types of money only ''after'' the money is created. The very definition of "money" and the distinction between "debt" and "money" (and their respective economic effects) are still sources of vigorous ongoing debate.<ref>[http://www.youtube.com/watch?v=s8HnN8Htr1M David Graeber's Interview with Max Keiser]</ref><ref>[http://lewrockwell.com/wile/wile25.1.html Daily Bell Interview: Dr. Joseph Salerno]</ref><ref>[http://mises.org/daily/5052/Deflation-Confusion-Money-Is-Not-Credit Money Is Not Credit], Robert Blumen</ref><ref>[http://globaleconomicanalysis.blogspot.com/2009/02/fiat-world-mathematical-model.html Fiat World], MISH</ref><ref>[http://globaleconomicanalysis.blogspot.com/2010/09/myths-about-whats-economically.html What's Economically Important], MISH</ref> Mainstream economists rarely if ever discuss the origins of modern money and generally do not actively discuss or comment on the fact that virtually all money is now created through individuals, or businesses, or governments going into debt to government-sponsored commercial banks.<ref>[http://mises.org/daily/3108 The Social Imperative of Sound Money], Lew Rockwell</ref><ref>For an example of the mainstream use of the term "credit" instead of "debt-money" see [http://www.ft.com/cms/s/bdfa429e-17a2-11dd-b98a-0000779fd2ac,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2Fbdfa429e-17a2-11dd-b98a-0000779fd2ac.html&_i_referer=http%3A%2F%2Fwww.ft.com%2Fhome%2Fasia this] example from the Financial Times, 1 May 2008</ref> Discussion around the nature of "debt-based" money and the arguments over its effects on the economy are notably absent from most established mainstream academic economic publications<ref>Paul Krugman, writing at [http://www.slate.com/id/9593 Slate.com], stated that the Austrian theory of business cycles was "about as worthy of serious study as the phlogiston theory of fire".</ref> and most mainstream economists instead argue that the origin of different kinds of money (and the volume of their issuance) does not really matter, at least in the long run.<ref>[http://www.lewrockwell.com/wenzel/wenzel87.1.html Senior Fed Economist Calls Ron Paul a Pinhead]</ref> This mainstream idea is referred to as the theory of "money neutrality".<ref>[http://www.lewrockwell.com/wenzel/wenzel87.1.html Senior Fed Economist Calls Ron Paul a Pinhead]</ref><ref>[http://mises.org/daily/5172/Is-Inflation-Harmless-or-Even-Good Is Inflation Harmless or Even Good?], Robert Murphy</ref><ref>[http://libertarianpapers.org/articles/2011/lp-3-14.pdf Free Banking and the Structure of Production], Dan Mahoney</ref> Some commentators have speculated that the unusual "silence" around the topics of fractional reserve banking and central banking and the staunch refusal to consider alternative theories of money can be attributed to the simple fact that many economists are on the payroll of the major commerical or central banks of the world and are beholden to those banks for their livelihood.<ref>[http://www.safehaven.com/article/15068/economists-opposing-fed-audit-are-on-fed-payroll Economists on Fed Payroll], MISH</ref><ref>[http://www.huffingtonpost.com/2009/09/07/priceless-how-the-federal_n_278805.html Priceless], Ryan Grim, Huffington Post</ref><ref>[http://www.marketoracle.co.uk/Article26581.html Ten Reasons The Banksters Got Away With It], Danny Schechter</ref><ref>[http://www.youtube.com/watch?v=FxtCn2GyqKc&feature=related Corruption in Academic Economics], Charles Ferguson</ref><ref>[http://www.marketoracle.co.uk/Article27805.html Currency Dead End Paradox], Jim Willie CB</ref> Those economists who "dare" to speak about such topics are simply not employed by the banks, by government-sponsored universities or by international financial institutions and are not published in mainstream economic publications and, therefore, their views are not widely disseminated to the general public who are generally taught by government-sponsored teachers and receive their news from the mainstream media.<ref>[http://www.huffingtonpost.com/2009/09/07/priceless-how-the-federal_n_278805.html Priceless], Ryan Grim, Huffington Post</ref><ref>[http://www.marketoracle.co.uk/Article26581.html Ten Reasons The Banksters Got Away With It], Danny Schechter</ref><ref>[http://www.youtube.com/watch?v=FxtCn2GyqKc&feature=related Corruption in Academic Economics], Charles Ferguson</ref><ref>[http://www.wsws.org/en/articles/2013/01/29/keen-j29.html UWS victimises Professor Steve Keen]</ref><ref>[http://www.zerohedge.com/news/2013-05-02/guest-post-nicholas-taleb-against-establishment-economists Establishment Economists]</ref>

== Typical criticisms ==

Founder of the so-called "New Austrian School", Professor Antal E. Fekete, has stated the following in relation to the current monetary system:<ref>[http://www.professorfekete.com/articles/AEFTheSilverSaga.pdf The Silver Saga]</ref>

{{quote|The world economy, sagging as it is under the weight of its debt tower and fast depreciating irredeemable currencies, is clearly on its way to self-destruction. The forcible elimination of, first, silver and then a hundred years later of gold, from the monetary system removed the only ultimate extinguishers of debt we have. In consequence, total debt can only grow, never contract. The process is hidden since the unpaid and unpayable debt is accumulating as sovereign debt of governments. The world is deluding itself that sovereign debt can increase indefinitely as governments can extend its maturity indefinitely. In 2008 we had the wake-up call that it cannot. Unless we stop the proliferation of debt, the world is facing prolonged deflation, depression, continuing capital destruction, bankruptcies and unprecedented unemployment. It is leading to a breakdown of law and order. It could spell the end of our civilization.}}

In August 2004, four years ''before'' the Global Financial Crisis of September 2008 and the ongoing financial crises in Europe and elsewhere, Austrian commentator Robert K. Landis stated the following:<ref>[http://www.goldensextant.com/SavingtheSystem.html Saving the System]</ref>

{{quote|No, the die is cast: we shall have the catastrophe. Our fiat monetary system got a reprieve in the 1980's, not a deliverance. All that has happened since, with the fantastic mispricing of credit the Greenspan Fed has engineered, and the massive global malinvestment this has engendered, is that the dimensions of the unraveling have become more dire.

Mises called this one too: "Certainly, the banks would be able to postpone the collapse; but nevertheless, as has been shown, the moment must eventually come when no further extension of the circulation of fiduciary media is possible. Then the catastrophe occurs, and its consequences are the worse and the reaction against the bull tendency of the market the stronger, the longer the period during which the rate of interest on loans has been below the natural rate of interest and the greater the extent to which roundabout processes of production that are not justified by the state of the capital market have been adopted."

With respect to the form the denouement will take, much has been written within the gold community on the subject of whether we face hyperinflation or deflationary depression as the prelude to monetary collapse. Both sides of the debate appear to accept the premise that whatever may transpire will bear a linear relationship to what now exists. The disagreement centers on the direction the line will go. But today's markets are fully linked by derivatives and technology, and they are patrolled by wolf packs of large, leveraged speculators not noted for their patient outlook. So it seems likely that the terminal monetary crisis will unfold on virtually an instantaneous and discontinuous basis, once the fog of statistical deceit and false market cues begins to lift and a clear trend either way becomes evident. We are not likely to enjoy the luxury of observing either a deflation or an inflation unfold in the fullness of time, but rather, just as Mises foretold, a final and total catastrophe of our fiat monetary system.}}

Financial commentator Jim Willie has written the following regarding the current fiat money system:<ref>[http://www.marketoracle.co.uk/Article39362.html Raging Gold Bull]</ref>

{{quote|The West cannot solve its problems, hardly properly described as a financial crisis anymore, under the current framework bound to the fiat paper currencies. The global monetary war is heating up notably. The heavy liquidity has caused unfixable distortions in every conceivable bond market niche. The new and better debt devices have been exposed for their shams. The leading central bankers lost their credibility long ago. The weakness is as broad as it is deep, a reliance upon paper wealth and paper structures and paper contracts, during a time of zero bound interest rates and unfettered hyper monetary inflation to cover the debts. Almost no foreign USTreasury Bond buyers exist anymore. The US has become Weimar Amerika, a fascist enclave.}}

On 5 March 1997, in a speech in the House of Lords in London England, the Earl of Cathiness made the following observations:<ref>[http://prosperityuk.com/2001/06/our-debt-based-money-system-will-break-us/ Our debt-based monetary system will break us], Earl of Cathiness, House of Lords, Wednesday, 5 March, 1997, Hansard, Vol. 578, No. 68, columns 1869-1871</ref><ref>See also the additional House of Lords speeches contained [http://earthlinggb.wordpress.com/2011/04/06/british-house-of-lords-stunning-speeches/ here]</ref>

{{quote|...it is also a good time to stand back, to reassess whether our economy is soundly based. I would contest that it is not, not for the reason to which the noble Lord, Lord Eatwell, alluded, which is that it is the Government’s fault, but our whole monetary system is utterly dishonest, as it is debt-based. “Dishonest” is a strong word, but a system which by its very actions causes the value of money to decrease is dishonest and has within it its own seeds of destruction. We did not vote for it. It grew upon us gradually but markedly since 1971 when the commodity-based system was abandoned.

Let us look at what has happened since then. The money supply in 1971 was just under £31 billion. At the end of the third quarter of last year, it was about £665 billion. In 25 years it has grown by a staggering 2,145 per cent. Where has the money come from? Interestingly, the Government have only minted a further £20 billion in that time. It is the banks, the building societies and our commercial lenders who have created the balance of £614 billion. If this rate of growth is projected over the next 25 years, the money supply in 2022 will be over £14,000 billion.

All that new money bears interest paid either by us as individuals, by companies or by the Government. Today the Government pay over £30 billion annually in interest charges — coincidentally about the same as the total money supply only 25 years ago. Governments since then have abdicated their responsibility for producing new money and controlling the money supply so that now they are marginalised. In 1971 government notes and coins accounted for 14 per cent of the money supply. Now it is only about 3.5 per cent. “So what?”, noble Lords might ask.

The problem is that it is commercial lending that has boosted the money supply, thus increasing debt and, as sure as night follows day, inflation follows growth in money supply of this sort...

Conventional wisdom tells us that in order to create new jobs and boost the economy, interest rates have to be reduced. That has happened. People are encouraged to borrow to invest and spend. That has happened. As the continuing flow of new money finds its way into the economy, inflation will follow and up will go interest charges again to reduce the level of borrowing. In order to pay the increasing levels of interest, borrowers will once more have to reduce expenditure in other areas of economic activity. The cycle will continue, but the next time, as before, we will all start deeper in debt and with a burden harder to carry. Personal debt has already increased by nearly 3,000 per cent since 1971. How much more can we take? I hope, for the sake of our economy, without which we cannot finance what we want to see — a good health service and a good social security system among other things — we will question this conventional wisdom.

We all want our businesses to succeed, but under the existing system the irony is that the better our banks, building societies and lending institutions do, the more debt is created. The noble Lord, Lord Kingsdown, said that there is little that can be done about debt. No, I do not believe that. There is a different way: it is an equity-based system and one in which those businesses can play a responsible role. The next government must grasp the nettle, accept their responsibility for controlling the money supply and change from our debt-based monetary system. My Lords, will they? If they do not, our monetary system will break us and the sorry legacy we are already leaving our children will be a disaster.}}

On 4 November 1999, Lord Sudeley stated in the House of Lords:

{{quote|The only way in particular to stop inflation is to stop banks from creating credit. The supply of money should be removed from banks and should be assumed by governments, who should issue it on a debt-free basis. Such a view is supported by five disparate quarters: the noble Lord, Lord Beswick, in the debate which he introduced to this House in 1985, Disraeli, the Vatican under Pope Pius XI in his Encyclical Quadragesimo Anno in 1931, the Tsars of Russia in the last century, who prevented the setting up of a privately owned central bank, and, above all, Abraham Lincoln, who said that governments should create, issue, and circulate all currency and credits needed to satisfy the spending power of governments and the buying power of consumers.

By adopting those principles, the taxpayer would be saved immense sums of interest. Lincoln’s greenbacks were generally popular, and their existence let the genie out of the bottle with the public becoming accustomed to government-issued, debt-free money. The year after Lincoln’s assassination, Congress set to work at the bidding of the European central banking interests to retire the greenbacks from circulation and to ensure the reinstitution of a privately owned central bank under the usurers’ control.

During the history of the United States, the money power has gone back and forth between Congress and some privately owned central bank. The American people fought off four privately owned central banks before succumbing to a fifth privately owned central bank, at that time essential, owing to the period of weakness during the Civil War.

The founding fathers of the United States knew the evils of a privately owned central bank. They had seen how the Bank of England ran up the British national debt to such an extent that Parliament was forced to place unfair taxes on the American colonies, leading to their loss following, the American Revolution.

I now conclude. Once the fundamental decision is taken to prevent sterling from being debt-based, the Commonwealth could act as the right monetary union to use sterling debt-free as a genuine alternative to the dollar and the euro.}}

Norm Franz states in his ''Money and Wealth in the New Millennium'':<ref>[http://www.amazon.com/Money-Wealth-Millennium-Norm-Franz/dp/0971086303 ''Money and Wealth in the New Millennium''], Norm Franz</ref>

{{quote|Gold is the money of kings, silver is the money of gentlemen, barter is the money of peasants – but debt is the money of slaves.}}

12th century Chinese scholar Hu Zhiyu stated:<ref>Ralph T. Foster, ''Fiat Paper Money, The History and Evolution of Our Currency'', page 19</ref>

{{quote|Paper money, the child, is dependent on precious metals, the mother. [Inconvertible paper notes are therefore] orphans who lost their mother in childbirth.}}

Robert H. Hemphill, credit manager of the Federal Reserve in Atlanta, stated in 1939:<ref>Preface to ''100% Money'', Irving Fisher. Note: This quote has not been traced to the primary source. See for example [http://www.webofdebt.com/excerpts/introduction.php Web of Debt] and [http://www.lewrockwell.com/north/north908.html Gary North's critique of the book and its sources]</ref>

{{quote|If all the bank loans were paid, no one would have a bank deposit and there would not be a dollar of coin or currency in circulation. This is a staggering thought. Someone has to borrow every dollar we have in circulation, cash or credit. If the banks create ample synthetic money we are prosperous; if not, we starve. When one gets a complete grasp of the picture the tragic absurdity of our hopeless position is almost incredible, but there it is. It (the banking problem) is the most important subject intelligent persons can investigate and reflect upon. It is so important that our present civilization may collapse unless it becomes widely understood and the defects remedied very soon.}}

British monetary reformer Michael Rowbotham states the following in his book, ''The Grip of Death'' (the title being derived from the literal origin of the word "mortgage"):<ref name="death">{{cite book |last= Rowbotham |first= Michael |title= The Grip of Death: A Study of Modern Money, Debt Slavery and Destructive Economics | year= 1998 |publisher= Jon Carpenter Publishing |isbn= 9781897766408 }}</ref>

{{quote|It is actually not in the least surprising that nations are chronically in debt, governments have inadequate resources, public services are under-funded and people are beset by mortgages and overdrafts. The reason for all this monetary scarcity and insolvency is that the financial system used by all national economies worldwide is actually founded upon debt. To be direct and precise, modern money is created in parallel with debt. The reason for the failure of economists to question patently invalid monetary data becomes clear - there is a total acceptance by them of the most extraordinary method for supplying money to the modern economy.

The creation and supply of money is now left almost entirely to banks and other lending institutions. Most people imagine that if they borrow from a bank, they are borrowing other people's money. In fact, when banks and building societies make any loan, they create new money. Money loaned by a bank is not a loan of pre-existent money; money loaned by a bank is additional money created. The stream of money generated by people, businesses and governments constantly borrowing from banks and other lending institutions is relied upon to supply the economy as a whole. Thus the supply of money depends upon people going into debt, and the level of debt within an economy is no more than a measure of the amount of money that has been created...

All around us, the gross failure of modern economics screams out to be addressed. The towering indifference of those shining offices scraping the sky above the menacing ghettos of Brooklyn; the speculative channelling of billions of pounds of volatile international finance, which can leave a country prosperous one week and plunged into decline the next; the ludicrous production of cheap goods of poor durability, so that jobs are 'protected', and we can recycle the materials and make the goods all over again; the ridiculous export drives by which every country simultaneously attacks the economies of every other nation, under the pretence that such global free trade improves the general wellbeing; the staggering waste of a throwaway, quick-growth, all-new spiral of constant economic change; the outrageous financial debt which Third World countries have actually paid many times over, but which, due to interest, is now larger than ever before - a debt which forces those impoverished nations to compete to supply goods already in surplus; the cynical manipulation of human emotions into buying fashion-obsessed trivia; the burgeoning transport demands of escalating economic growth and centralisation, with identical goods crisscrossing the globe, regardless of environmental cost; the fact that despite the incredible productive capacity of the modern economy, people are obliged to work harder, with ever greater efficiency, forever forced to adapt and retrain or face a life of indignity and misery as one of the unemployed.

Both those in work and out must watch, as the world they know and understand changes almost in front of their eyes like some nightmarish Kafka-esque novel. This is the era of accelerating economic change. The benefits are highly dubious, and no-one even pretends that the economy is responding to what people actually want. The only justification offered for the changes is that this is 'the age of progress', and 'you can't stop progress', even if you are human and the progress you are discussing is supposed to be about people and the lives they might lead in the future. The world of economics has got mankind by the throat and everyone knows it, and no-one has a clue where we are going or why we are going there.

But is this surprising? If a monetary system is invalid or flawed, then the entire economy is based on the mathematics of error, and must be riddled with the effects. If the financial system upon which our economies are built is defective, and yet monetary considerations dominate our economic decisions, should we be surprised if the results are less than satisfactory?

The major role played by bank credit, which forms over 95% of the money stock in most developed nations, suggests that it cannot but be implicated in these trends. This is further suggested by the way that banking has literally become the focal point of modern economic management, through manipulating interest rates. The stargazers of Whitehall and the Federal Reserve hold their councils, trying to tread the non-existent tightrope between growth and recession by debating quarter percentage-points of interest rates. Alan Greenspan, the Chairman of the Federal Reserve, engagingly describes his task in controlling the American economy through adjusting interest rates as a matter of 'taking the champagne away once the party has started'. Businessmen around the world hold their breath, measuring his every word, wondering what he will decide. There could be no greater indictment of contemporary financial economics than this; that a fluctuating financial digit on a single computer system in a single street in a single country should have the ability to dominate the economies of an entire planet...

The past thirty years are almost unique by comparison with the previous three centuries in the lack of attention that has been directed at debt and the financial system. Throughout the eighteenth century, there were repeated calls for reform. During the nineteenth century, excessive banking was held by many to be directly responsible for the waves of appalling poverty that swept Europe and America during a period of increasing industrialisation and agricultural development. In this century, during the depression of the 1930s, the financial system effectively seized up and brought virtual collapse to the economies of the world in an age which was, perhaps for the first time, obviously wealthy, and in which technology offered people real freedom as well as material prosperity. One observer judged that over 2,000 schemes for monetary reform were put forward at that time - all with a common theme in their outright rejection of the debt-based financial system as it then operated. The same system continues to this day, modified in small details, but unchanged in principle; and the recent financial crisis in Asia shows the potential for collapse still exists.

However the issue of economic volatility through booms, slumps, crises, and collapses has never been the sole point of criticism. It is the long-term trends that a debt-based financial system fosters which are most destructive. The most obvious of these is declining personal solvency. Mortgages support over 60% (£420 billion) of the money stock in the UK and over 70% ($4.2 trillion) in the US. Housing-debt statistics for the UK and the US show that there has been a dramatic decline in true home ownership as mortgages become higher and ever more widespread. There can be little question that relying upon housing debt to supply money to an economy lacks economic and political justification. However, taken in conjunction with the marked rise in commercial debt, mortgages have a knock-on effect. In an economy where the price of goods is elevated by commercial debt and consumer incomes are deeply eroded by mortgage debt, there is a persistent and subtle advantage given to low-quality, mass-produced goods, and growth is fostered in this direction. The persistent decline in product durability and the growth-culture of a rapacious consumer society can be directly traced to the debt-based financial system.

The financial system has also generated a serious distortion of agriculture. Excessive farming debt has driven out the most efficient producers - small/medium sized farms. Meanwhile, the relentless pursuit of farming and processing methods oriented towards a low-price market now involves the production of foodstuffs of poor nutritional value, inferior to that which the land can provide and inferior to that which consumers actually desire.

The nature of growth within a debt economy affects not only the quality of output, but distribution and marketing. Intense competition for sales within a debt-based economy results in the use of transport as a competitive strategy by businesses. This has led to a progressive breakdown of local and regional supply networks, and marketing over ever-greater distances, leading to escalating commercial traffic demands.

At the international level, trade is deeply affected by the debt-based financial system. The aggressive pursuit of maximum export revenues, rather than seeking a simple balance of trade, is entirely due to the fact that even the wealthiest nations operate from a position of gross insolvency. International trade has degenerated into a competition between nations to alleviate their indebtedness, rather than a process involving a mutually beneficial exchange of goods and services.

Endemic Third World debt is also directly attributable to the reliance upon debt and banking to supply money. The theoretical model of borrowing from the World Bank/IMF, investing in development and repaying loans from export revenues, is one of the great failures of contemporary economics. The persistent inability on the part of debtor nations to repay these loans suggests strongly that the nature of the indebtedness suffered by the Third World has absolutely no actual legitimacy or validity...

The more one explores the broad impact of debt, the more apparent it becomes that bank-credit constitutes a dysfunctional form of money. An economy based almost entirely upon bank-credit and debt experiences an intense drive for growth, regardless of need or demand. Bank credit engenders financial dependence, injects instability and fosters growth-distortions, both within an economy and throughout the international arena.

Reform of the debt-based financial system is clearly not a minor issue. It is not a matter of fiddling around with taxes, incomes and allowances to make things apparently more equal, more efficient, or perhaps more straightforward. Changing the debt-based financial system involves gradually altering the very foundations upon which national and international economics is based. Monetary reform is concerned with attempting to determine a new principle for the supply of money to an economy - the purpose being to create a supportive financial environment in which more constructive economic trends are allowed to emerge, and in which more benign systems of overall economic management become possible. In view of the rapacious onslaught on the environment, the waste of natural resources and the social and political friction caused by de-regulated commerce and capital flows, this is at once a promising, but a sobering prospect.}}

Dr Chris Leithner states in his book ''The Evil Princes of Martin Place'':<ref>[http://economics.org.au/2011/04/the-banking-bubble-blow-by-blow/ The Evil Princes of Martin Place]</ref>

{{quote|The inflation that necessarily results from fractional reserve banking is a “tax” by which the early recipients of counterfeit money expropriate late recipients’ wealth. The tax is particularly insidious because it’s so well hidden. Few people — apparently including banksters and mainstream economists! — understand it (or, if they understand it, certainly don’t draw attention to it); and still less do they discuss its ethical and distributional implications. Obviously, it’s in insiders’ interest to distract outsiders’ attention from the source of the counterfeiting. It’s also in their interest to reverse the order of causality with respect to the cause and consequences of inflation, and thereby further to bamboozle the public. Accordingly, governments and mainstream economists don’t attribute the consequence (rising prices) to its single cause (inflation); instead, they brazenly and diametrically incorrectly insist that rising prices cause inflation! (p. 143)...

Gosplan, the Soviet Union’s central planning agency, set targets for the production of steel, cement and myriad other goods and services; Western central banks set targets for the Overnight Cash Rate and the Consumer Price Index. The chaotic consequences of central plans, Soviet and Western, necessarily reverberate throughout the economy … It’s quite comical: people who claim they “believe in the free market” blindly and unthinkingly affirm central banking and its relentless interventions into the market. Elementary logic completely escapes them: if you reject central planning in general, then you must also reject specific aspects like the central planning of money. If you abhor attempted price-fixing, then you must abhor the attempt to fix the Overnight Cash Rate. (pp. 254-55)...

[I]t is highly improbable that the combination of a pure gold standard and a 100% reserve for deposits has ever resulted in a prolonged rise of prices. The historical record is telling: in no year from 1492 to the present has the total supply of gold increased by more than 5%. (p. 552)}}

Ron Paul stated in his book ''End the Fed'':<ref name="Paul_End">Ron Paul. [http://mises.org/daily/3687 ''End the Fed''], ''Mises Institute'', September 03, 2009. Chapter 2 of the book ''End the Fed''. Referenced 2011-03-16.</ref>

{{quote|American presidents actually worked to implement and defend the gold standard, which put a brake on the ability of the largest banks to expand credit without limit. The gold standard worked like a regulator in this way. Ultimately, banks had to function like every other business. They could expand and make risky loans up to a point, but when faced with bankruptcy, they had nowhere they could turn. They would have to contract loans and deal with extreme financial pressures. Risk bearing is a wonderful mechanism for regulating human decision making. This created a culture of lending discipline.

In the jargon of the day, the system lacked "elasticity." That's another way of saying that banks couldn't expand money and credit as much as they wanted. They couldn't inflate without limit and count on a centralized institution to bail them out...

The banking industry has always had trouble with the idea of a free market that provides opportunities for both profits and losses. The first part, the industry likes. The second part is another issue. That is the reason for the constant drive in American history towards the centralization of money and banking, a trend that not only benefits the largest banks with the most to lose from a sound money system, but also the government, which is able to use an elastic system as an alternative form of revenue support. The coalition of government and big bankers provides the essential backbone of support for the centralization of money and credit...

Consider the Soviet case: to my knowledge, no business ever went under with the Soviet system but society in general grew ever poorer. Think of that Soviet system applied to the banking industry and you have the Fed.}}

He also wrote the following in March 2013:<ref>[http://lewrockwell.com/paul/paul854.html The Great Cyprus Bank Robbery]</ref>

<blockquote>Remember that under a fractional reserve banking system only a small percentage of deposits is kept on hand for dispersal to depositors. The rest of the money is loaned out. Not only are many of the loans made by these banks going bad, but the reserve requirement in Euro-system countries is only one percent! If just one euro out of every hundred is withdrawn from banks, the bank reserves would be completely exhausted and the whole system would collapse. Is it any wonder, then, that the EU fears a major bank run and has shipped billions of euros to Cyprus?

The elites in the EU and IMF failed to learn their lesson from the popular backlash to these tax proposals, and have openly talked about using Cyprus as a template for future bank bailouts. This raises the prospect of raids on bank accounts, pension funds, and any investments the government can get its hands on. In other words, no one's money is safe in any financial institution in Europe. Bank runs are now a certainty in future crises, as the people realize that they do not really own the money in their accounts. How long before bureaucrat and banker try that here?

Unfortunately, all of this is the predictable result of a fiat paper money system combined with fractional reserve banking. When governments and banks collude to monopolize the monetary system so that they can create money out of thin air, the result is a business cycle that wreaks havoc on the economy. Pyramiding more and more loans on top of a tiny base of money will create an economic house of cards just waiting to collapse. The situation in Cyprus should be both a lesson and a warning to the United States. We need to end the Federal Reserve, stay away from propping up the euro, and return to a sound monetary system.</blockquote>

In the foreward to ''Fiat Money Inflation in France'', Mr John McKay wrote the following:<ref>[http://mises.org/books/inflationinfrance.pdf ''Fiat Money Inflation in France''], Andrew Dickson White, 1912</ref>

{{quote|The story of "Fiat Money Inflation in France" is one of great interest to legislators, to economic students, and to all business and thinking men. It records the most gigantic attempt ever made in the history of the world by a government to create an inconvertible paper currency, and to maintain its circulation at various levels of value. It also records what is perhaps the greatest of all governmental efforts—with the possible exception of Diocletian's—to enact and enforce a legal limit of commodity prices. Every fetter that could hinder the will or thwart the wisdom of democracy had been shattered, and in consequence every device and expedient that untrammelled power and unrepressed optimism could conceive were brought to bear.

But the attempts failed. They left behind them a legacy of moral and material desolation and woe, from which one of the most intellectual and spirited races of Europe has suffered for a century and a quarter, and will continue to suffer until the end of time. There are limitations to the powers of governments and of peoples that inhere in the constitution of things, and that neither despotisms nor democracies can overcome.

Legislatures are as powerless to abrogate moral and economic laws as they are to abrogate physical laws. They cannot convert wrong into right nor divorce effect from cause, either by parliamentary majorities, or by unity of supporting public opinion. The penalties of such legislative folly will always be exacted by inexorable time. While these propositions may be regarded as mere commonplaces, and while they are acknowledged in a general way, they are in effect denied by many of the legislative experiments and the tendencies of public opinion of the present day. The story, therefore, of the colossal folly of France in the closing part of the eighteenth century and its terrible fruits, is full of instruction for all men who think upon the problems of our own time.}}

C.J. Maloney wrote of the desperation of Henry VIII of England to counterfeit gold by engaging charlatan-alchemists:<ref>[http://www.lewrockwell.com/maloney/maloney28.1.html The Desperation of King Henry VIII], C.J. Maloney</ref>

{{quote|Despite his formidable education and great historic reputation, the disastrous interventions into the economy, the lifelong dishonesty with the currency in his care and, most of all, his laughable attempts to bring a sorcerer into his court to conjure gold, mark the great King Henry VIII as a fool. Yet there is no reason, be warned, for anyone to feel superior to the King; one only needs to pick up a newspaper to see that though alchemy may be a dead science, it has merely taken up new forms.

This has always been and always will be, for its immortality is powered by economic man’s most dangerous, fondest wish, the one that will drive us to endless imbecilities and repeated destruction – the ardent desire to believe that you can get something for nothing. His adherence to that belief made King Henry VIII a man of his times – and ours.}}

In his treatise, ''The Ethics of Money Production'', which was published by the Mises Institute in October 2008, Jörg Guido Hülsmann presents (at pages 238-239) the following description of the perverse rise of fiat money and fractional reserve banking:

{{quote|There is no tenable economic, legal, moral, or spiritual rationale that could be adduced in justification of paper money and fractional-reserve banking. The prevailing ways of money production, relying as they do on a panoply of legal privileges, are alien elements in the capitalist [i.e., true free market] economy. They provide illicit incomes, encourage irresponsibility and dependence, stimulate the artificial centralization of political and economic decision-making, and constantly create fundamental disequilibria that threaten the life and welfare of millions of people. In short, paper money and fractional-reserve banking go a long way toward accounting for the excesses for which the capitalist economy is widely chided.

We have argued that these monetary institutions have not come into existence out of any economic necessity. They have been created because they allow an alliance of politicians and bankers to enrich themselves at the expense of all other strata of society. This alliance emerged rather spontaneously in the seventeenth century; it developed in multifarious ways up to the present day, and in the course of its development it created the current monetary institutions.

…The driving force that propelled the development of central banks and paper money was the reckless determination of governments, both aristocratic and democratic, to increase their revenue, if necessary in violation of good faith and of all established rules of commerce.}}

The father of the Deutsche Mark, Wilhelm Röpke (1899-1966) stated:<ref>[http://www.professorfekete.com/articles/AEFAmericanBasesGermanyGoldBasis.pdf The Gold Basis], Antal E Fekete</ref>

{{quote|It is not the gold standard that failed, but those in whose care it was entrusted.}}

Many [[monetary reform]]ers claim that a fiat money/fractional-reserve based banking system is inherently destructive and inevitably generates [[inflation|debasement of the currency]], extreme inequality, the destruction of the middle class<ref name="Paul_End" /> and [[Austrian Business Cycle Theory|wrenching business crises]].<ref>[http://www.marketoracle.co.uk/Article25212.html The Faults of FRB], Thorsten Polleit</ref><ref name="Paul_End" /><ref>[http://mises.org/store/Money-Bank-Credit-and-Economic-Cycles-P290C0.aspx Money, Bank Credit and Economic Cycles], Jesus Huerta de Soto, Mises Institute ISBN: 978-1-933550-39-8</ref><ref>[http://www.mises.org/Books/mysteryofbanking.pdf Murray Rothbard, ''The Mystery of Banking'']</ref><ref name="books.google.com">{{cite book |last= Brown |first= Ellen H. |title= Web of Debt |url= http://books.google.com/books?id=ILMGrEC524UC |accessdate= 2007-12-15 |year= 2007 |publisher= Engdahl Publishing|isbn= 0979560802 }}</ref><ref name="death"/><ref name="monetary.org">[http://www.monetary.org/lostscienceofmoney.html Stephen A. Zarlenga, ''The Lost Science of Money'' AMI (2002)]</ref><ref>[http://mises.org/story/3108 Sound Money], Lew Rockwell</ref><ref>[http://mises.org/story/1971 Our Money Madness], Lew Rockwell</ref><ref>[http://mises.org/rothbard/genuine.asp The Case for a Gold Dollar], Murray Rothbard</ref><ref name="twilight"/> Vladimir Z. Nuri has analyzed fractional reserve banking and considers it a form of economic parasitism.<ref>[http://econpapers.repec.org/paper/wpawuwpma/0203005.htm Fractional Reserve Banking as Economic Parasitism]</ref> Ellen Hodgson Brown has compared fractional reserve banking and the charging of compound interest on created money with cancer.<ref>[http://www.marketoracle.co.uk/Article39053.html Why Bankers Rule the World], Ellen Hodgson Brown</ref>

These views are not accepted by mainstream government-supported economists. For example David Andolfatto, Vice President in the Research Division of the Federal Reserve Bank of St. Louis, has openly called Dr. Ron Paul a "pinhead" for holding such views.<ref>[http://www.lewrockwell.com/wenzel/wenzel87.1.html Senior Fed Economist Calls Ron Paul a Pinhead], LRC</ref> He later tried unsuccessfully to delete or retract his statements and expressed his regret over making the comments.<ref>[http://www.lewrockwell.com/wenzel/wenzel92.1.html Fed Economist in Retreat], Robert Wenzel</ref>

Critics of fractional reserve banking frequently argue that since money creation requires ''loans'' from the banking system, people are required to go further into debt in order for any new money to be created. They theorize that this eventually causes [[Austrian Business Cycle Theory|credit cycle]]s (or [[Austrian Business Cycle Theory|business cycles]]) and debases the [[means of exchange]].<ref>[http://www.marketoracle.co.uk/Article25212.html The Faults of FRB], Thorsten Polleit</ref> They also argue that if debts were ever paid back, there would be no money and the economy would collapse in a debt-deflation trap.<ref>[http://www.youtube.com/watch?v=jqvKjsIxT_8 Money As Debt]</ref> They therefore argue the system is ''inherently unstable'', requiring constantly increasing injections of debt just to avoid deflationary collapse.<ref>[http://www.youtube.com/watch?v=jqvKjsIxT_8 Money As Debt]</ref> They claim this is ultimately unsustainable.<ref>[http://www.youtube.com/watch?v=jqvKjsIxT_8 Money As Debt]</ref><ref>[http://www.youtube.com/watch?v=HZAzBDDnhwg Rich Dad Advisors Discuss Food Storage]</ref>

Many critics find it problematic that banks "create money out of nothing" and consider this fundamentally immoral, akin to [[counterfeiting]]<ref>[http://www.youtube.com/watch?v=QIBFvikcl7g Stacy Herbert and Max Keiser: Flaming Banks] Max Keiser Quote: "Banks counterfeit money. Bernanke, Geithner... anyone in the banking business is just a... just an out of control, rogue, counterfeiting, naked short selling ''weasel''."</ref> and/or [[embezzlement]].<ref>[http://www.dailypaul.com/node/119914 Ron Paul video - fractional reserve banking is fraudulent]</ref><ref name="Paul_End" /><ref>[http://www.marketoracle.co.uk/Article25212.html The Faults of FRB], Thorsten Polleit</ref>

Some also link the alleged negative effects of fractional reserve banking with central banking<ref>[http://www.zerohedge.com/article/guest-post-qe-end-america-we-know-it QE Is The End Of America], ZeroHedge</ref> and a government-enforced "paper" or [[fiat currency]],<ref>[http://www.marketoracle.co.uk/Article27768.html The Federal Reserve Note Is Dead], Jeff Berwick</ref> which they claim allows the practice of fractional reserve banking to continue without a "natural" limitation on the growth of the [[money supply]], thereby causing inherently unsustainable "[[bubble (economics)|bubbles]]" in asset and capital markets, which are vulnerable to Ponzi-like speculation by highly leveraged [[hedge funds]] and other bank agents.<ref name="Paul_End" /><ref>[http://www.debtdeflation.com/blogs/2009/12/23/mish-on-the-fictional-reserve-system/ MISH on the Fictional Reserve System], Steve Keen</ref><ref>[http://mises.org/store/Money-Bank-Credit-and-Economic-Cycles-P290C0.aspx Money, Bank Credit and Economic Cycles], Jesus Huerta de Soto, Mises Institute ISBN: 978-1-933550-39-8</ref><ref name="books.google.com">{{cite book |last= Brown |first= Ellen H. |title= Web of Debt |url= http://books.google.com/books?id=ILMGrEC524UC |accessdate= 2007-12-15 |year= 2007 |publisher= Third Millennium Press |location= Baton Rouge, Louisiana |isbn= 0979560802 }}</ref><ref name="death"/><ref name="monetary.org">[http://www.monetary.org/lostscienceofmoney.html Stephen A. Zarlenga, ''The Lost Science of Money'' AMI (2002)]</ref><ref>[http://mises.org/story/3108 Sound Money], Lew Rockwell</ref><ref>[http://mises.org/story/1971 Our Money Madness], Lew Rockwell</ref><ref>[http://mises.org/rothbard/genuine.asp The Case for a Gold Dollar], Murray Rothbard</ref><ref name="twilight"/><ref>[http://www.marketoracle.co.uk/Article25212.html The Faults of FRB], Thorsten Polleit</ref>

Reformist economists such as [[Murray Rothbard]] support a "full reserve" banking system and criticize [[fractional reserve banking]] as inherently fraudulent.<ref>[http://mises.org/daily/5185/The-Need-for-100-Reserves The Need for 100% Reserves], Frank D. Graham</ref> [[Murray Rothbard]] held this view very strongly throughout his life.<ref name="Paul_End" /><ref>[http://www.marketoracle.co.uk/Article25212.html The Faults of FRB], Thorsten Polleit</ref> Other reformist economists are more tolerant of fractional-reserve banking and support [[free banking]] instead of full reserve banking.<ref>[http://books.google.com/books?id=DFv6OzeBWpQC&pg=PP3&dq=steven+horwitz++banking&sig=VZasp_8pGVvpQsFKMI3W9yp4AlM#PPA231,M1 Microfoundations and Macroeconomics: An Austrian Perspective], Steven Horwitz, pp. 223-232.</ref>

==Basic debate==

The economic, environmental and social effects arising from money creation through fractional-reserve banking have been subject to much heated political debate for well over two centuries.<ref name="The Forgotten War"/><ref name="books.google.com"/><ref name="death"/><ref name="twilight"/><ref>[http://www.silverbearcafe.com/private/fracbank.html Antal E. Fekete, Fractional Reserve Banking Revisited]</ref><ref>[http://news.goldseek.com/GoldSeek/1297199137.php China Inflation and Gold], Darryl Robert Schoon</ref><ref>[http://www.zerohedge.com/article/guest-post-good-bad-and-ugly-part-3 The Good, the Bad and the Ugly], James Quinn</ref><ref>[http://www.marketoracle.co.uk/Article29255.html The Collapse of Paper Money], Darryl Robert Schoon</ref><ref>[http://www.goldismoney2.com/archive/index.php/t-524.html?s=d418ff253326772a09e1a8d992da7753 Venetian Bankers and the Dark Ages]</ref>

Many Austrian economists and monetary reformers focus on the combined use of [[fiat currency]], [[fractional-reserve banking]] and [[central banking]] as a negative feature of modern monetary systems.<ref>[http://www.youtube.com/watch?v=G1l7DY8kdz0 The Fed Unspun]</ref><ref>[http://mises.org/media/4014 The Economics of Legal Tender Laws], [[Jorg Guido Hulsmann]]</ref><ref>[http://mises.org/store/Meltdown-P557.aspx ''Meltdown''], Tom Woods, Regnery Press ISBN: 9781596985872</ref> These commentators use the term "debt-based monetary system" to refer to an economic system where [[money]] is created primarily through fractional-reserve banking techniques, using the banking system.<ref>[http://mises.org/daily/4569 What Does Debt-Based Money Imply for Interest Payments?], Robert Murphy</ref><ref>[http://mises.org/daily/4631 Is Our Money Based On Debt?], Robert Murphy</ref><ref name="speech"/> This form of money is called "debt-based" because as a ''condition of its creation'' someone must go into debt in order for the money to be created and it must be paid back plus interest at some time in the future.

To some commentators, this implies that as the [[money supply]] and the economy grows, the general populace becomes increasingly indebted at the same time due to the fact that debt grows in parallel with money supply growth, and increasing interest payments (from either taxpayers or indebted consumers) are needed to pay bondholders as the money supply grows.<ref>[http://www.marketoracle.co.uk/Article28533.html The Global Debt Crisis], Ellen Hodgson Brown</ref><ref name="death"/><ref name="twilight">[http://www.marketoracle.co.uk/Article4489.html Antal E. Fekete, The Twilight of Irredeemable Debt]</ref><ref name="The Forgotten War">[http://news.goldseek.com/GoldSeek/1192819378.php America's Forgotten War Against the Central Banks], Mike Hewitt</ref>

One argument posits that since debt and the interest on the debt can only be paid in the same form of money, the total debt (principal plus interest) can never be paid in a debt-based monetary system unless more money is created through the same process.<ref>[http://www.marketoracle.co.uk/Article28533.html The Global Debt Crisis], Ellen Hodgson Brown</ref><ref>[http://www.marketoracle.co.uk/Article38581.html The Trillion Dollar Coin: What You Really Need To Know], Rudy Avizuis</ref> For example: if 100 credits are created and loaned into the economy at 10% per year, at the end of the year 110 credits will be needed to pay the loan and extinguish the debt. However, since the additional 10 credits does not yet exist, it too must be borrowed. To some, this implies that the money supply must grow exponentially at the same rate as economic growth and compounding debt in order for the monetary system to remain solvent, as economic activity would be stifled with a static volume of money when interest became due, because in a static-money world no new money could be found to be taken out of circulation to allow debtors to pay outstanding interest to creditors.<ref name="death"/><ref name="twilight"/><ref>[http://globaleconomicanalysis.blogspot.com/2011/01/steve-keen-responds-to-world-economic.html Exponential Credit], MISH,</ref><ref>[http://blog.mises.org/17737/chancellor-not-enough-gold/ Not Enough Gold], Robert Blumen</ref><ref>[http://mises.org/daily/6391/Why-the-Greenbackers-Are-Wrong Why Greenbackers Are Wrong], Thomas Woods</ref>

Others argue that there is in fact no mathematical necessity for the stock of money in a debt-based system to grow, as the "turnover" or "flow" or "velocity" of money can increase to allow for compounding interest payments.<ref>[http://mises.org/daily/4569 What Does Debt-Based Money Imply for Interest Payments?], Robert Murphy</ref><ref>[http://www.debtdeflation.com/blogs/2010/10/08/ami-talks-in-flv-format/ AMI Conference 2010], Steve Keen</ref><ref>[http://www.debtdeflation.com/blogs/2010/11/05/solving-the-paradox-of-monetary-profits-2/ Solving the Paradox of Monetary Profits], Steve Keen</ref><ref>[http://www.zerohedge.com/news/2013-02-11/occams-gold-vs-rube-goldbergs-fiat Occam's Gold]</ref><ref>[http://mises.org/daily/6391/Why-the-Greenbackers-Are-Wrong Why Greenbackers Are Wrong], Thomas Woods</ref> However this does imply that population growth would need to be positive to encourage increased spending rates or some individual consumers would have to increase their rate of spending (and decrease their savings) to expand GDP sufficiently to allow the fixed stock of money to turnover sufficiently to pay for the interest compounding on top of the debt.<ref>[http://globaleconomicanalysis.blogspot.com/2011/01/steve-keen-credit-impulse.html The Credit Impulse], Steve Keen with commentary from MISH</ref><ref>[http://mises.org/daily/4569 What Does Debt-Based Money Imply for Interest Payments?], Robert Murphy</ref><ref>[http://www.debtdeflation.com/blogs/2010/10/08/ami-talks-in-flv-format/ AMI Conference 2010], Steve Keen</ref><ref>[http://www.debtdeflation.com/blogs/2010/11/05/solving-the-paradox-of-monetary-profits-2/ Solving the Paradox of Monetary Profits], Steve Keen</ref> This may mean that Ponzi-like dynamics bubble up in "pockets" of the economy with interest payments being allowed in a fixed money economy, but these debt-fuelled bubbles of higher spending or speculation would pop and die out relatively quickly as there would be no central bank to keep the bubbles alive with further money creation.<ref>[http://mises.org/daily/4569 What Does Debt-Based Money Imply for Interest Payments?], Robert Murphy</ref><ref>[http://globaleconomicanalysis.blogspot.com/2011/01/steve-keen-credit-impulse.html The Credit Impulse], Steve Keen with commentary from MISH</ref><ref>[http://www.zerohedge.com/news/2013-02-11/occams-gold-vs-rube-goldbergs-fiat Occam's Gold]</ref>

Gold, silver and other [[precious metals]] have in the past been used as money.<ref>[http://www.zerohedge.com/news/2013-02-11/occams-gold-vs-rube-goldbergs-fiat Occam's Gold]</ref> Because of the difficulty in increasing the supply of precious metals quickly, some [[monetary reform]]ers believe a return to the [[gold standard]], or a similar system of "hard" or "real" asset-backed currency, is the only way to stabilize the growth of the money supply. These monetary reformers often refer to the gold standard and [[silver standard]] as "sound money" or "honest money".<ref>[http://mises.org/daily/4860 Money: Sound and Unsound], Mark Thornton commentary on Joseph Salerno's book</ref><ref>[http://mises.org/daily/6391/Why-the-Greenbackers-Are-Wrong Why Greenbackers Are Wrong], Thomas Woods</ref>

==Main criticisms==

In a 2003 statement to the U.S. House of Representatives, Ron Paul stated "if unchecked, the economic and political chaos that comes from currency destruction inevitably leads to tyranny".<ref name="house.gov">[http://www.house.gov/paul/congrec/congrec2003/cr090503.htm Paper Ron Paul, Paper Money and Tyranny, Speech in U.S. House of Representative, September 5, 2003]</ref>

Some economic thinkers (primarily members of the [[Austrian School]]) and political commentators believe that a debt-based monetary system amounts to a subtle form of monetary "[[fraud]]" in that it creates money "costlessly" through the use of [[fractional-reserve banking]] techniques.<ref>[http://www.mises.org/rothbard/moneyback.asp Taking Money Back, by Murray Rothbard]</ref>

Michael Rowbotham is an active proponent of [[monetary reform]], and argues that this system of [[money supply]] is perverse and inherently monopolistic and "anti-democratic", as it creates an inflationary exponential growth imperative in the economy which leads to over-centralization and environmentally damaging and unstable over-consumption. Critics such as Rowbotham argue that the indebted are forced to induce new consumers to spend their way into debt so existing loans can be repaid with new debt-created money. Failure to achieve this goal results in [[foreclosure]] for those businesses and [[insolvency]] in the banking system that leads to economic collapse due to the sudden contraction of the money supply.<ref name="death"/><ref name="Ponzi Nation">[http://www.iimagazine.com/article.aspx?articleID=1234345 Ponzi Nation]</ref> This failure is inevitable due to the fact that, eventually, debt-saturated businesses and governments will no longer be able to force individuals into further debt due to the fact that they are already debt-saturated themselves. Once this point is reached, economic collapse is inevitable without wholesale debt repudiation.

Mark Anielski as well as some political thinkers such as Rowbotham and some economists (such as Hyman Minsky, Steve Keen and Mike Shedlock) argue that this system of money supply has characteristics similar to a [[pyramid scheme]], where the newly indebted are compelled to induce others into debt to pay off their own debts.<ref>[http://globaleconomicanalysis.blogspot.com/2011/01/steve-keen-credit-impulse.html The Credit Impulse], Steve Keen with commentary from MISH</ref><ref>[http://www.lin.ca/resource/html/arpa02/PC1-FertileObfuscation.pdf ''Fertile Obfuscation: Making Money Whilst Eroding Living Capital''], 34th Annual Conference of the Canadian Economics Association, Mark Anielski</ref> It is therefore argued by a number of monetary reformers that fractional-reserve banking and the associated exponential growth of money in the economy "forces" the economy towards indebted consumerism.<ref name="books.google.com"/>

Rowbotham argues that a major negative side-effect of the debt-based monetary system is its effect on agriculture, claiming that residential development produces by far the greatest continuous injection of debt money into modern debt-based economies because banks secure loans primarily with developed property and are therefore willing to issue more debt-money against property development than any other asset class. Therefore, significant super-normal profits can be generated by re-zoning agricultural land and replacing it with low-density [[House|housing]].<ref name="death"/>
If this is correct, this trend will lead to the destruction of fertile arable land, as farmers cannot compete to retain fertile arable land from property developers at the periphery of major population centers, and as this land is then progressively re-zoned for speculative new residential development. Rowbotham predicts that the global supply of fertile arable land will systematically and catastrophically decline as perverse monetary incentives inherent in the current debt-based system favor short-term speculative land development over long-term food security, leading to a broad decline in the quality and nutritional value of agricultural produce and, eventually, a dramatic increase in the prices of many "soft" commodities - which could then lead to actual food shortages for poorer segments of the world population.<ref>[http://www.marketoracle.co.uk/Article27874.html Horrific Global Food Crisis is Looming], Michael Snyder</ref><ref>[http://www.lewrockwell.com/blog/lewrw/archives/85588.html Inflation and Bacteria], Michael Rozeff</ref><ref>[http://www.lewrockwell.com/blog/lewrw/archives/76920.html The Corporate State and the Tapeworm Economy], Catherine Austin Fitts</ref><ref name="death"/><ref>[http://www.wsws.org/articles/2007/dec2007/food-d22.shtml Naomi Spencer, World Socialist Website, "Severe food shortages, price spikes threaten world population", 22 December 2007]</ref><ref>[http://www.preparednesspro.com/blog/food-shortage-series-part-1/ Food Shortage Series],Kellene Bishop</ref> This has been referred to as the problem of "Peak Everything".<ref>[http://globaleconomicanalysis.blogspot.com/2011/03/oil-prices-are-double-edged-sword-peak.html Peak Everything?], MISH</ref><ref>[http://www.marketoracle.co.uk/Article28218.html "Peak Everything"], Jeremy Grantham</ref>

If for any reason the monetary system broke down, urban populations (nominally "rich" but poor in terms of direct access to food supply) could find basic foodstuffs either rationed or contaminated with lower quality products - or even unavailable at any price, ultimately resulting in food security becoming a major public policy issue - particularly if combined with oil supply shortages or an oil price spike,<ref>[http://www.marketoracle.co.uk/Article27874.html Horrific Global Food Crisis is Looming], Michael Snyder</ref><ref>[http://jsmineset.com/2011/02/24/in-the-news-today-791/ Collapse]</ref> as major population centers worldwide are almost entirely reliant on mass transportation of food from distant (or even foreign) locations to survive day-to-day.<ref>[http://www.marketoracle.co.uk/Article27874.html Horrific Global Food Crisis is Looming], Michael Snyder</ref><ref name="death"/><ref>[http://www.preparednesspro.com/blog/food-shortage-series-part-1/ Food Shortage Series],Kellene Bishop</ref><ref>[http://www.wsws.org/articles/2007/dec2007/food-d22.shtml Severe food shortages, price spikes threaten world population]</ref><ref>[http://www.nytimes.com/2010/12/18/business/global/18yuan.html?hpw Inflation in China]</ref><ref>[http://www.lewrockwell.com/blog/lewrw/archives/76920.html The Corporate State and the Tapeworm Economy], Catherine Austin Fitts</ref><ref>[http://jsmineset.com/2011/02/24/in-the-news-today-791/ Collapse]</ref><ref>[http://www.rickackerman.com/2011/04/bee-die-off-threatens-global-food-calamity/ Bee Die Off]</ref><ref>[http://globaleconomicanalysis.blogspot.com/2011/03/oil-prices-are-double-edged-sword-peak.html Peak Everything?], MISH</ref><ref>[http://lewrockwell.com/bonner/bonner602.html We're all going to die]</ref> In addition, fresh water (an essential commodity that is subsidised in its production by state-controlled entities in virtually every country around the world) appears to be rapidly diminishing through pollution and over-use, further threatening the global food supply in coming decades, resulting in what some commentators are describing as a global water crisis of "horrific" proportions.<ref>[http://lewrockwell.com/rep2/water-crisis-coming.html 25 Signs That a Horrific Global Water Crisis Is Coming], Economic Collapse Blog</ref><ref>[http://www.zerohedge.com/news/2013-03-06/guest-post-30-facts-coming-water-crisis-will-change-everything 30 Facts]</ref> Yemeni is at the cutting edge of these issues, having a simultaneous and inter-related water and drug crisis caused by economic stagnation, unemployment and social inequality.<ref>[http://www.youtube.com/watch?v=b0PgJ4fqpIM Khat]</ref> Recent "scandals" involving Mad Cow Disease in Britain, <ref>[http://www.centerforfoodsafety.org/campaign/food-safety/mad-cow-disease/other-resources/a-consumers-guide-to-mad-cow-disease/history-of-rendering-cattle-cannibalism-in-the-usa/ History of Rendering]</ref> the fraudulent supply of horse meat sold as beef in Europe,<ref>[http://www.theaustralian.com.au/news/world/horsemeat-scandal-a-global-conspiracy/story-e6frg6so-1226574880191 Horsemeat a global conspiracy]</ref> rat poison found in Polish dairy products<ref>[http://www.wbj.pl/article-61746-scandals-rock-polish-food-exports.html Scandals Rock Polish Food Exports]</ref> and rat meat fraudulently sold as lamb in China<ref>[http://www.zerohedge.com/news/2013-05-03/forget-horse-meat-or-fake-tuna-rat-meat-being-sold-lamb-china Rat Meat Sold as Lamb in China]</ref> could be seen as the logical conclusion of Rowbotham's analysis, as economic pressures build to systematically debase the quality of inputs throughout the food chain as producers fight the effects of cost-push inflation and try to satisfy the need for ever-increasing productivity in the industrialized food industry by systematically debasing their products until they are not fit for human consumption, but are allowed to be consumed by the authorities anyway because of the urgent need to feed the general population within their shrinking incomes.<ref>[http://www.edmundconway.com/2013/02/horse-meat-scandal-the-economics/ Horse meat scandal: the economics]</ref><ref>[http://www.theaustralian.com.au/news/world/horsemeat-scandal-a-global-conspiracy/story-e6frg6so-1226574880191 Horsemeat a global conspiracy]</ref> For example, it is alleged that Mad Cow Disease was caused by British authorities reducing heating standards in the waste meat rendering process to reduce the cost of food production in Britain. Food scandals are becoming so prevalent a new term "Food Fraud" has become popular to describe this escalating phenomenon, mirroring monetary fraud in the wider economic system.<ref>[http://www.zerohedge.com/news/2013-05-03/forget-horse-meat-or-fake-tuna-rat-meat-being-sold-lamb-china Rat Meat Being Sold as Lamb in China]</ref> If Rowbotham's analysis is correct, these food contamination and food debasement scandals will become ongoing and endemic in coming years, but may be censored by the authorities in future to avoid widespread protests.<ref>[http://www.zerohedge.com/news/2013-02-11/guest-post-more-stealth-inflation-maker%E2%80%99s-mark-slashes-alcohol-content More Stealth Inflation]</ref><ref>[http://www.edmundconway.com/2013/02/horse-meat-scandal-the-economics/ Horse meat scandal: the economics]</ref><ref>[http://www.zerohedge.com/contributed/2013-02-14/hidden-inflation-everywhere-watered-down-bourbon-horse-meat-chili Hidden Inflation Everywhere]</ref><ref>[http://en.wikipedia.org/wiki/2008_Chinese_milk_scandal Chinese Milk Scandal]</ref> This has already occurred in China with authorities trying to censor reports of toxic melamine in Chinese milk products<ref>[http://en.wikipedia.org/wiki/2008_Chinese_milk_scandal Chinese Milk Scandal]</ref> and in the UK with British authorities downplaying or delaying information relating to the huge scale of the horse meat scandal.<ref>[http://www.youtube.com/watch?v=SxZtfi2pYNo&list=SPPszygYHA9K2ZtV_1KphSugBB7iZqbFyz&index=6 Horsemeat Burgers], Max Keiser</ref> Max Keiser has made a direct connection between stealth monetary debasement throughout the banking system and stealth debasement of inputs throughout the British food chain.<ref>[http://www.youtube.com/watch?v=SxZtfi2pYNo&list=SPPszygYHA9K2ZtV_1KphSugBB7iZqbFyz&index=6 Horsemeat Burger]</ref> Quality adjustments in official CPI measurements often ''reduce'' the rate of inflation by assuming quality ''improvements'' - however no government has taken into account these food scandals in ''increasing'' the effective rate of inflation by taking into account dramatic ''reductions'' in the quality of food production.<ref>[http://www.abs.gov.au/websitedbs/webfaq.nsf/home/consumer+price+index+faqs CPI FAQs]</ref><ref>[http://www.econ.rochester.edu/people/BilsPapers/growth_qje_revision_August_2008.pdf BLS paper on CPI adjustments for quality]</ref><ref>[http://www.zerohedge.com/news/2013-03-02/first-horsemeat-trading-now-59-tuna-sold-us-isn%E2%80%99t-tuna 59% Of Tuna Isn't Tuna]</ref> If the dramatic degradation in the quality of food production was fully taken into account, it is likely that "true" inflation would be measured far in excess of official figures, and may in some instances (such as with the UK horse meat scandal) be reaching something similar to hyperinflation in some years, as food that changes from "beef" to "horse meat" is effectively a tiny fraction of the quality of the product of only a few years or months ago.<ref>[http://www.youtube.com/watch?v=SxZtfi2pYNo&list=SPPszygYHA9K2ZtV_1KphSugBB7iZqbFyz&index=6 Horsemeat Burgers], Max Keiser</ref>

Others consider that the core problem is not food security, nor overpopulation, nor environmental destruction, nor excessive carbon emissions due to non-pricing of energy producing externalities, nor excessive "specialization" of labor in the midst of monetary dysfunction, but excessive government regulation, causing capital destruction.<ref>[http://mises.org/daily/5277/When-Capital-Is-Nowhere-in-View When Capital Is Nowhere In View], Jeffrey Tucker</ref><ref>[http://www.garynorth.com/public/8071.cfm Population Growth as Propaganda], Gary North</ref><ref>[http://www.marketoracle.co.uk/Article39449.html An Orwellian America], Gordon T Long</ref>

The fundamental problem with the current monetary system that all Austrian economists agree on is that in the midst of constant credit creation and monetary dysfunction is it ''impossible'' to know what unsustainable [[malinvestment]]s are taking place in the economy, except to acknowledge that they ''must'' be taking place somewhere in the midst of unsustainable credit growth.<ref>[http://www.goldensextant.com/SavingtheSystem.html Saving the System], Robert K. Landis</ref>

===Effects on economic health: Ponzi scheme dynamics===

According to Michael Rowbotham and many Austrian theorists the expansion of money through debt is unsustainable and necessarily fuels and creates [[Austrian Business Cycle Theory|economic bubbles]].<ref>[http://mises.org/daily/5567/Hayeks-Ghost-Haunts-the-World Hayek's Ghost Haunts the World], Jeffrey Tucker</ref> This concentrates wealth in the hands of private banks as the populace is forced into [[debt]] simply to own a home and educate their children, hoping that the loans can be repaid by others going into debt in ''greater amounts'' later to purchase the assets they themselves have purchased through incurring large amounts of personal debt.<ref name="death"/> However, debt expansion leads to price appreciation of assets through speculation as the financial market becomes riskier and this process is unsustainable in the long run, with the last cycle of indebted being wiped out when they cannot find anyone to buy the assets they themselves have purchased by going into massive debt. Doug Noland, Steve Keen, Edward Chancellor, Bill Bonner and many others have compared this type of market to an enormous State-sponsored global monetary [[Ponzi scheme]].<ref>[http://www.debtdeflation.com/blogs/2008/12/13/the-worlds-biggest-ponzi-scheme/ The World's Biggest Ponzi Scheme], Steve Keen</ref><ref>[http://www.iimagazine.com/article.aspx?articleID=1234345 Ponzi Nation,"Who is Hyman Minsky?", para 6]</ref><ref>[http://www.marketoracle.co.uk/Article26678.html One Gargantuan Ponzi Scheme], Paul Hallyer</ref><ref>[http://prudentbear.com/dmdocuments/HowCouldIrvingFisherHaveBeenSoWrong.pdf How Could Irving Fisher Have Been So Wrong?], Doug Noland</ref><ref>[http://globaleconomicanalysis.blogspot.com/2010/08/former-fed-governor-mishkin-paid-124000.html Mishkin], MISH</ref><ref>[http://www.lewrockwell.com/bonner/bonner467.html Warning], Bill Bonner</ref>

The bust phase of this Ponzi-like [[business cycle]] occurs when "debt-based" money growth cannot continue because the debt levels are already at saturation levels, meaning growth in debt money slows or contracts, catching newly indebted businesses and consumers who are left out of the growth cycle, triggering a combined liquidity and solvency crisis when markets seize up due to a collapse in the artificially-supported prices in financial markets.<ref name="death"/><ref name="Ponzi Nation"/>

===Effects on the environment===
There are also critics in the left-wing and environmentalist camps who contend fractional reserve banking (by creating a necessity for indefinite [[economic growth]]) leads to environmental destruction and a sudden, catastrophic depletion of the earth's natural resources as the unsustainable, exponential consumption of the world's scarce natural resources reaches its inevitable limits.<ref>David Korten, ''Agenda For A New Economy'', Berret-Koehler, 2009</ref><ref>[http://www.monbiot.com/archives/2004/10/06/no-longer-obeying-orders/ George Monbiot], about five sixths of the way down</ref>

===Inherent problems with the system===

Some monetary reformers predict that there will be an increased incidence of financial crises in the developed world, as economic and population growth inevitably slow and as the success of financial sector lobbying results in increased tax loopholes and a reduction in effective redistributive [[tax]]es which, combined with the debt-legacy of the [[welfare state]], allows an intense and unsustainable concentration of wealth and political power in the financial services sector.<ref name="death">{{cite book |last= Rowbotham |first= Michael |title= The Grip of Death: A Study of Modern Money, Debt Slavery and Destructive Economics | year= 1998 |publisher= Jon Carpenter Publishing |isbn= 9781897766408 }}</ref><ref>[http://www.youtube.com/watch?v=TdVc40Mc9cQ&feature=related Andrew Sheng, INET presentation]</ref>

Some monetary reformers argue that perverse incentives in the financial services industry lead to collusive relationships between governments and bankers which are economically and socially destablizing in the long run.<ref>[http://mises.org/media/4014 The Economics of Legal Tender Laws], Jorg Guido Hulsmann</ref>

Given that the financial system requires ever higher levels of indebtness from the general populace for its solvency, it is vital that the indebted "victims" who must sink deeper into debt for the system to survive do so voluntarily and willingly and are not made aware of the consequences of purchasing consumables with debt money.<ref name="death">{{cite book |last= Rowbotham |first= Michael |title= The Grip of Death: A Study of Modern Money, Debt Slavery and Destructive Economics | year= 1998 |publisher= Jon Carpenter Publishing |isbn= 9781897766408 }}</ref> Some isolated politicians have previously highlighted the fact that mainstream media organizations appear to downplay or minimize the seriousness of deficit spending by government and debt-sourced spending of all kinds.<ref>[http://www.senate.gov/~budget/democratic/statements/2005/fs_reconciliationfloorstmt102005.pdf Speech by Senator Kent Conrad (D-ND) on October 20, 2005 regarding the "misleading" reporting of deficit spending by the mainstream media]</ref> Euphemisms for debt and personal and national bankruptcy associated with debt have been developed to delay a mass panic away from government bonds or debt. For example, the associated growth of debt-based derivatives during the upward phase of the debt money cycle was referred to as "[[innovation]]" in financial markets.<ref>[http://www.nytimes.com/2007/12/03/opinion/03krugman.html?em&ex=1196917200&en=ac60abcdbd977d07&ei=5087%0A Innovating Our Way to Financial Crisis, by Paul Krugman]</ref>

[[Bankruptcy]] laws differ to a small degree in different jurisdictions but in all developed economies unpaid debt results in legal penalties, property confiscation on behalf of the creditor and income [[sequestration]]. Although in Christian, Jewish and Muslim religious practice there have been traditions of debt relief or laws against [[usury]], in no modern Western jurisdiction are any debts periodically forgiven or cancelled in recognition of the inherent impossibility of repaying debts in circumstances where the debt-based monetary cycle has inevitably resulted in too little new [[debt money]] being injected into the [[money supply]] to pay for the currently outstanding debts.<ref>[http://www.nakedcapitalism.com/2007/11/new-bankruptcy-law-backfires-by.html Bankruptcy law backfires]</ref>

On a national level, if the issuance of [[government bonds]] becomes unsustainable, sovereign [[bankruptcy]] can occur - and has occurred many times in history.<ref>[http://mises.org/daily/4869 Can the Fed Become Insolvent?], Robert Murphy</ref><ref>[http://elainemeinelsupkis.typepad.com/money_matters/2007/10/greenspaniel-an.html Greenspaniel and U.S. bankruptcy]</ref><ref>[http://www.prudentbear.com/index.php/thebearslairview?art_id=10493 Dee-Fault!], Martin Hutchinson, Prudent Bear</ref> [[Sovereign debt]] crises due to the inability of nations to pay interest on [[government bonds]] have occurred frequently and regularly in the third world and less frequently (every 30 years or so) in the first world as a result of high levels of unsustainable public debt - often because private debts are assumed by a corrupt government through large private bank bailouts.<ref>[http://www.dailymail.co.uk/debate/article-1331076/Ireland-bailout-Lets-frank-7bn-bunch-liars-crooks-bunglers.html Ireland Bailout], Alex Brummer</ref><ref name="Willie_Misdiagnosis">[http://www.marketoracle.co.uk/Article24543.html QE2 and the Great Economic Misdiagnosis], Jim Willie, November 24, 2010.</ref> The [[Latin American debt crisis]] is an example of sovereign debt levels becoming unsustainable, resulting in a [[currency crisis]] and economic collapse, as [[interest rates]] rise precipitously due to the inability of the national government to attract financiers to purchase new [[government bonds]] to inject new debt money into the ailing economy.<ref name="Willie_Misdiagnosis" />

At such times, it is the responsibility of the [[IMF]] to come in as a kind of supranational [[central bank]] to mediate between the national government and international financiers.<ref>[http://globaleconomicanalysis.blogspot.com/2011/05/imf-chief-pulled-from-plane-in-new-york.html Time to Dissolve the IMF], MISH</ref> The role of the [[IMF]] as [[central bank]] to the world has similar responsibilities and risks inherent in [[central bank]]ing which are described below in relation to the role of the [[Federal Reserve]]. If the [[IMF]] repeatedly intervenes to save financiers from loss when sovereign bankruptcy occurs, this has a tendency to induce [[moral hazard]] and can encourage the financing of reckless government spending and borrowing.<ref>[http://www.rgemonitor.com/41 IMF Reform and International Lender of Last Resort, RGE Monitor]</ref><ref>[http://info.interactivist.net/article.pl?sid=02/11/07/199213&mode=thread&tid=8 Banking Bunkum, by Henry C.K. Liu]</ref><ref name="Willie_Misdiagnosis" />

A [[single currency]] regime such as the [[Euro]] can mask national liquidity or solvency crises, by ensuring that a national currency is not quickly exchangeable for another, thereby restricting the ability of national governments to depreciate their currencies and cutting off the possibility that the real value of [[government bond]] interest repayments could decline relative to other currencies.<ref>[http://www.dailymail.co.uk/news/article-1316442/Anglo-Irish-Bank-bail-Will-Irish-economic-meltdown-hit-UKs-fragile-recovery.html Irish Meltdown], UK Mail On-line,</ref><ref>[http://www.marketoracle.co.uk/Article24459.html Ireland Bailout Consequences for Britain, Portugal Next?], Nadeem Walayat</ref><ref name="Willie_Misdiagnosis" /><ref>[http://news.goldseek.com/RichardDaughty/1192374060.php The Mogambo Theory of Currency Relativity]</ref><ref>[http://www.youtube.com/watch?v=IvJEJEGzeU8&feature=player_embedded#! Putin ditches dollar], RTTV</ref> This may however increase the risk of bond default where indebted national governments cannot pay back the interest payments in the denominated common currency.<ref>[http://www.dailymail.co.uk/news/article-1316442/Anglo-Irish-Bank-bail-Will-Irish-economic-meltdown-hit-UKs-fragile-recovery.html Irish Meltdown], UK Mail On-line,</ref><ref>[http://blog.mises.org/15129/bagus-explains-the-ecb-and-the-euro/ The Tragedy of the Euro], Philipp Bagus</ref>

===Types of downturns===
{{main|Austrian Business Cycle Theory}}
[[Austrian Business Cycle Theory]] states that artificially low interest rates set by any coercive price-fixing entity will inevitably stimulate malinvestment in the wrong capital projects which will inevitably lead to an unsustainable boom followed by a bust.<ref>[http://mises.org/daily/5164/The-Cure-Low-Interest-Rates-Is-the-Disease The Cure (Low Interest Rates) Is The Disease], Thorsten Polleit</ref> However, the precise nature of the downturn and the way in which losses are allocated within the economy are both dependent on the actions government and bankers take to forgive debt or control credit and there are two main kinds of debt money contraction that can cause a collapse in the value of inflated assets.

A "credit squeeze" occurs where new debt money is difficult to access without a high [[credit rating]]. At such times marginal borrowers, or those who have borrowed at the end of any debt-induced asset bubble, get "squeezed" out of further borrowing and a contraction in the growth of new debt money occurs, triggering a slow down in the growth of inflated assets. Those assets can then be "harvested" by the [[private bank]]s through widespread [[foreclosure]] or [[bankruptcy]] and re-sold to those with the money to buy the distressed assets.<ref name="marketoracle.co.uk">[http://www.marketoracle.co.uk/Article2882.html Market Fundamentalism, by Richard C. Cook]</ref>

A "credit crunch" occurs where new debt money is not available at any [[interest rate]] - even for those with previously acceptable credit ratings - due to widespread insolvency in the banking system. At such times, it is the banking system itself that is [[insolvent]] and other financial institutions (including overseas financiers) become reluctant to lend to the domestic banking system, resulting in the domestic banking system being unable to issue loans even to credit worthy borrowers.<ref>[http://en.wikipedia.org/wiki/Credit_crunch Credit crunch], Wikipedia definition</ref>

At any stage during the downward spiral of a "credit crunch", the [[central bank]] in a modern economy can try to save the system from complete economic meltdown by purchasing (either indefinitely or temporarily) the failed debts of the private banks.<ref>[http://www.youtube.com/watch?v=PTUY16CkS-k&feature=player_embedded#! Quantitative Easing Explained]</ref><ref>[http://www.marketoracle.co.uk/Article24489.html Does the Fed Create Money?] Michael Pento</ref><ref>[http://www.telegraph.co.uk/money/main.jhtml?view=DETAILS&grid=A1YourView&xml=/money/2007/12/19/ccom119.xml ECB's mind-numbing cash injection]</ref> This involves swapping depreciating "failed" assets with hard cash, thereby allowing the banks to maintain their net asset position and continue to give the impression of solvency to their auditors and depositors. However, doing so results in cash being transferred to the private banks in exchange for [[bad debt]], thereby violating the general economic precept to avoid [[moral hazard]] and effectively makes liquid the failed lending decisions of the [[private bank]]s.<ref>[http://globaleconomicanalysis.blogspot.com/2011/06/prudently-managed-banks-victimized-by.html Prudent Banks Victimized], MISH</ref><ref>[http://www.rgemonitor.com/blog/roubini/228924/ Privatizing Profits and Socializing Losses, by Nouriel Roubini]</ref> In the U.S. banking system this is called "opening the Fed discount window", where the [[Federal Reserve]] temporarily purchases the failed investment portfolios of distressed private banks in exchange for cash. However, this rescue measure may only delay, rather than avoid, the realization of losses in the banking system, as the central bank cannot "force" new borrowing into the system to inject new debt money into the money supply. Somebody has to be a [[counterparty]] to borrow the debt money that is being offered. If all market participants realize a "[[bubble (economics)|bubble]]" has formed in assets markets, there will be few (or no) buyers for new debt money, as no one wants to borrow to buy inflated assets no one else will buy. Money markets can therefore remain illiquid even with intense [[central bank]] support.<ref>[http://www.prudentbear.com/index.php/creditbubblebulletinview?art_id=10511 Favorable or Unfavorable], Doug Noland, Prudent Bear</ref>

Furthermore, banks can go bust even with intense central bank support, if the issue is not one of liquidity, but one of solvency.<ref>[http://www.ft.com/cms/s/0/233ae764-abef-11dc-82f0-0000779fd2ac.html Central Banks have No Plan]</ref><ref>[http://www.rgemonitor.com/blog/roubini/233120 Central Banks get desperate]</ref><ref>[http://www.youtube.com/watch?v=VMngK0t5WkY $20 Trillion in Bad Debt], Max Keiser</ref><ref>[http://www.marketoracle.co.uk/Article27686.html Bernanke's QEx Money Printing Box], Gordon T. Long</ref>

===Market meddling and pushing on a string===
Some monetary economists describe the opening of the Fed discount window after the bursting of an asset bubble and swapping of "junk" with new money as "pushing on a piece of string", as this measure does not solve the key problem – creating new credit (or debt money) to keep up the growth in the money supply and maintain the required level of liquidity in credit markets.<ref>[http://www.mises.org/story/2695 Don't Discount the Fed Discount Window]</ref><ref>[http://www.federalreserve.gov/Pubs/FEDS/2004/200401/200401pap.pdf Monetary Policy in Deflation: The Liquidity Trap in History and Practice]</ref> This is because unlimited central bank money and low interest rates ''allow'' credit creation, but cannot ''force'' it into the system. In order for any new debt money to be created, someone has to ''borrow'' the excess reserves in order for the money to be injected into the system. With an endogenous money system, money is only created if someone wants to borrow money from a bank. If corporations and individuals are already heavily indebted (or insolvent after the bursting of a debt-induced bubble) there are no credit-worthy borrowers to lend to. This means there are no new buyers at the margin to keep asset prices at high levels. If there are no new marginal buyers, "liquidity" - or debt growth - dries up and volumes and prices drop suddenly, forcing liquidation and creating a sudden cascading effect in highly leveraged markets very similar to the end of an unsustainable Ponzi scheme. The only ones able to stimulate the economy are the tiny minority of bankers who have been bailed out by the central bank and even if they spent lavishly to try to "help" the economy, this would in no way compensate for the lack of spending in the general economy.

To encourage fresh borrowing, central banks generally combine these rescue measures with an interest rate cut to encourage more new borrowing to allow the existing (failed) debts to be [[liquidate]]d at or close to their original value. When [[Alan Greenspan]] repeatedly resorted to this tactic to revive illiquid [[money market]]s this became known in the market as the "[[Greenspan put]]", as the effect of these repeated reductions in interest rates was similar to a [[put option]] in the [[stockmarket]], insuring [[bank]]s' lending mistakes would be covered up by the Federal Reserve.<ref>[http://www.iie.com/publications/wp/02-1.pdf Moral Hazard and the "Greenspan Put"]</ref>

When interest rates cannot go any lower (the so-called "zero bound" monetary problem) and people still will not - or cannot - load themselves up with more debt, then to stave off a collapse of market prices due to the drying up of marginal buyers at inflated debt-saturated prices central banks have resorted to "Quantitative Easing" - which is the abandonment of interest rate setting and the targeting of bulk purchases of bank assets to artificially pump up their price and keep the banking system solvent.<ref>[http://www.marketoracle.co.uk/Article38855.html QE for Dummies], Dr Martenson</ref> In addition, the Keynesian solution is to run large public deficits and indebt future generations (who, they hypothesize, are more likely to be able to pay through increased future growth).<ref>[http://www.zerohedge.com/news/2013-02-09/paul-krugman-we-should-kick-can-down-road-it%E2%80%99s-responsible-thing-do "Kick the Can Down the Road"]</ref><ref>[http://www.nytimes.com/2010/12/26/business/26view.html?_r=1&scp=1&sq=shiller&st=cse Stimulus Without More Debt], Robert Shiller</ref> Fabian socialists, and Keynesian economists such as Paul Krugman and Robert Shiller, argue that governments must take charge of the responsibility of spending more (and taking on more debt) on behalf of the public (who are too fearful to take on more debt themselves) in order to compensate for the immediate and urgent ''present'' insufficiency in total private consumption.<ref>[http://www.zerohedge.com/news/2013-02-09/paul-krugman-we-should-kick-can-down-road-it%E2%80%99s-responsible-thing-do "Kick the Can Down the Road"]</ref><ref>[http://www.nytimes.com/2011/09/05/opinion/the-fatal-distraction.html?src=me&ref=general The Fatal Distraction], Paul Krugman</ref><ref>[http://www.nytimes.com/2010/12/26/business/26view.html?_r=1&scp=1&sq=shiller&st=cse Stimulus Without More Debt], Robert Shiller</ref><ref>[http://mises.org/daily/5616/Is-the-Need-for-Stimulus-Undeniable Is the Need for Stimulus "Undeniable"?], Hunter Lewis</ref> Paul Krugman and Robert Reich are prominent advocates of the policy of spending trillions of government money to help stimulate the economy, if spending billions does not work.<ref>[http://www.realclearpolitics.com/video/2011/09/01/reich_government_has_to_spend_more_to_get_out_of_debt.html Reich: Government Has To Spend More To Get Out Of Debt]</ref><ref>[http://www.nytimes.com/2010/06/21/opinion/21krugman.html?dbk Budget Deficits], Paul Krugman</ref><ref>[http://globaleconomicanalysis.blogspot.com/2010/10/krugman-and-inevitable-i-told-you-so.html Krugman], MISH</ref><ref>[http://krugman-in-wonderland.blogspot.com/2010/11/inflation-prisoner.html The Inflation Prisoner], William Anderson</ref> For economists such as Paul Krugman, if the "more and more government spending" solution does not work initially, it is a sign that not enough government money has been spent.<ref>[http://www.lewrockwell.com/sowell/sowell44.1.html Fed Up With the Fed?], Thomas Sowell</ref><ref>[http://www.nytimes.com/2010/12/20/opinion/20krugman.html?hp When Zombies Win], Paul Krugman, NY Times</ref><ref>[http://globaleconomicanalysis.blogspot.com/2010/10/krugman-and-inevitable-i-told-you-so.html Krugman], MISH</ref> It is his view that the "deflationary" Japanese recession from 1991/2 could have been cured by the Japanese government going into even more debt than the current net debt to GDP ratio of 110%.<ref>[http://www.nytimes.com/2010/06/21/opinion/21krugman.html?dbk Budget Deficits], Paul Krugman</ref><ref>[http://www.economist.com/node/15867844 Japan's debt-ridden economy], The Economist</ref> Although some commentators have puzzled over exactly which group Krugman blames for the crisis, Krugman repeatedly calls for the government "to do more" and "spend more" as the "responsible" way out of the crisis, regardless of the true culprits or cause of the crisis.<ref>[http://www.zerohedge.com/news/2013-02-09/paul-krugman-we-should-kick-can-down-road-it%E2%80%99s-responsible-thing-do "Kick the Can Down the Road"]</ref><ref>[http://www.nytimes.com/2011/08/08/opinion/credibility-chutzpah-and-debt.html?_r=1&hp Credibility, Chutzpah and Debt], Paul Krugman</ref><ref>[http://www.thedailybell.com/2271/Shock-Krugman-Turns-on-Elites.html Shock Krugman Turns on Elites], The Daily Bell</ref><ref>[http://www.nytimes.com/2011/04/11/opinion/11krugman.html?_r=2&hp Obama Is Missing], Paul Krugman</ref> When pressed to find culprits he identifies "extremist" Republicans and, somewhat paradoxically, those who call for ''fiscal restraint'' to be the real source of the debt crisis and the downgrading of US sovereign debt.<ref>[http://www.nytimes.com/2011/08/08/opinion/credibility-chutzpah-and-debt.html?_r=1&hp Credibility, Chutzpah and Debt], Paul Krugman</ref> How ''increasing'' the debt load will solve the debt problem is never explained, apart from Krugman repeatedly stating that the "long-term" debt problem is not as important as the immediate and urgent "lack of spending" problem.<ref>[http://www.zerohedge.com/news/2013-02-09/paul-krugman-we-should-kick-can-down-road-it%E2%80%99s-responsible-thing-do "Kick the Can Down the Road"]</ref> Krugman has never advocated the simple solution of debt default as the way to solve the debt crisis, despite de-emphasizing the scale of the debt by arguing that we (mostly) "owe it to ourselves".<ref>[http://krugman.blogs.nytimes.com/2011/12/28/debt-is-mostly-money-we-owe-to-ourselves/ Debt is mostly money we owe to ourselves]</ref> If this was the case, debt default would be the easiest solution. On the other hand, Paul Krugman has yet to clearly identify a country or a time when government spending became excessive or was out of control and resulted in too much accumulation of debt and malinvestment during an economic slowdown. He has intimated that, perhaps, the Greek government may have spent too much, but he treats that as an isolated case and not applicable to the rest of Europe or the United States, despite some countries having comparable debt levels to Greece's.<ref>[http://www.nytimes.com/2011/09/12/opinion/an-impeccable-disaster.html?_r=1&hp An Impeccable Disaster], Paul Krugman</ref> He has also never explained or written about what happens ''after'' government stimulus spending inevitably stops, which Austrians argue would inevitably result in an even bigger slump if it is not continually replaced with something similar or bigger.<ref>[http://krugman.blogs.nytimes.com/2013/05/09/the-moral-equivalent-of-space-aliens/ Space Aliens], Paul Krugman. Quote: "To almost everyone’s surprise, Japan — Japan! — has emerged as the advanced country most willing to break with austerian orthodoxy and try a combination of aggressive monetary and fiscal stimulus. The verdict on Abenomics is, of course, still out, although early indications are good. But how did this happen? David Pilling , writing in the FT, suggests that it was the double shock of the 2011 tsunami and China’s overtaking of Japan as the number 2 economy by market value. These shocks, he argues, broke through the fatalism and convinced the Japanese elite that something must be done. Long-time readers know that I once joked that what we needed in America was a fake threat from space aliens, which would jolt us into action on stimulus; '''if the aliens were later revealed as a hoax, no matter'''. Well, it looks as if Japan has found the moral equivalent of space aliens. Good for them." (emphasis added)</ref> If further attempts at artificial government-induced "stimulus" ''are'' attempted, Austrians argue that this pointless exercise would simply further distort capital structures throughout the economy. They therefore see the slump as curative, even if it results in bank runs and financial crises. They see light at the end of the depression, once the re-pricing of capital goods and financial assets returns the economy to a sound, stable footing - provided ''no bailouts occur, debts are liquidated and reduced or cancelled and provided asset prices are permitted to fall''.<ref>[http://www.zerohedge.com/news/guest-post-keynesian-solutions-after-total-failure-try-try-again Keynesian Solutions Total Failure]</ref><ref>[http://dailyreckoning.com/the-pain-of-restoring-investor-confidence/ The Pain of Restoring Investor Confidence], Bill Bonner</ref><ref>[http://dailyreckoning.com/government-spending-and-the-path-to-money-printing/ Government Spending and the path to Money Printing], Bill Bonner</ref><ref>[http://www.prudentbear.com/index.php/featuredcommentaryview?art_id=10485 Krugman Is Eating America Alive], Neeraj Chaudhary, Prudent Bear</ref><ref>[http://www.marketoracle.co.uk/Article25163.html Keynesian models], Robert Murphy</ref><ref>[http://krugman-in-wonderland.blogspot.com/2010/11/inflation-prisoner.html The Inflation Prisoner], William Anderson</ref><ref>[http://www.lewrockwell.com/north/north925.html Yes, Virginia, There Really Is a Free Lunch], Gary North</ref><ref>[http://mises.org/daily/5257/They-Want-Us-to-Love-the-Fed They Want Us to Love the Fed], William L. Anderson</ref><ref>[http://lewrockwell.com/rockwell/many-collapses-of-keynesianism189.html The Many Collapses of Keynesianism], Lew Rockwell,</ref>

Although there is active debate as to whether Keynesian "stimulus" policy (spending money and thereby indebting future generations, with the government spending debt-sourced money on projects the private sector would not touch) can actually help the economy long term,<ref>[http://www.zerohedge.com/news/2014-01-30/fed-has-fingers-thumbs-scales-finance-grant-tells-santelli-and-it-will-end-badly It Will End Badly]</ref><ref>[http://www.mises.org/daily/6357/Feds-Policies-Expose-Mainstream-Fallacies Mainstream Fallacies], Frank Shostak</ref><ref>[http://www.zerohedge.com/news/guest-post-keynesian-solutions-after-total-failure-try-try-again Keynesian Solutions Total Failure]</ref><ref>[http://dailyreckoning.com/the-pain-of-restoring-investor-confidence/ The Pain of Restoring Investor Confidence], Bill Bonner</ref><ref>[http://dailyreckoning.com/government-spending-and-the-path-to-money-printing/ Government Spending and the path to Money Printing], Bill Bonner</ref><ref>[http://www.prudentbear.com/index.php/featuredcommentaryview?art_id=10485 Krugman Is Eating America Alive], Neeraj Chaudhary, Prudent Bear</ref><ref>[http://www.marketoracle.co.uk/Article25163.html Keynesian models], Robert Murphy</ref><ref>[http://krugman-in-wonderland.blogspot.com/2010/11/inflation-prisoner.html The Inflation Prisoner], William Anderson</ref><ref>[http://www.lewrockwell.com/north/north925.html Yes, Virginia, There Really Is a Free Lunch], Gary North</ref><ref>[http://mises.org/daily/5257/They-Want-Us-to-Love-the-Fed They Want Us to Love the Fed], William L. Anderson</ref><ref>[http://lewrockwell.com/rockwell/many-collapses-of-keynesianism189.html The Many Collapses of Keynesianism], Lew Rockwell,</ref> there is no argument that this would undoubtedly help the present group of private bankers, as increased income from the interest payments on new government bond issuance offsets the decline in private sector debt and allows banks to survive when otherwise they may face collapse due to the fatal impairment of their balance sheets through private debt write-offs after an unsustainable debt-fuelled bubble bursts.<ref>[http://georgewashington2.blogspot.com/2010/08/quantitative-easing-wont-help-economy.html QE won't help the economy]</ref><ref>[http://moneymorning.com/2010/11/19/federal-reserves-quantitative-easing-strategy-save-the-us-economy/ QE won't save the economy]</ref>

As government debt is effectively an asset on the books of the banks, increasing Treasury bond issuance necessarily increases the profitability and net asset position of the debt-issuing banks - at least until government insolvency or mass tax evasion renders the value of those bonds worthless.<ref>[http://www.marketoracle.co.uk/Article25313.html Asset Speculation and Capital Destruction], Jim Willie</ref><ref>[http://www.prudentbear.com/index.php/featuredcommentaryview?art_id=10485 Krugman Is Eating America Alive], Neeraj Chaudhary, Prudent Bear</ref>

Perhaps in recognition that increasing debt to solve a debt crisis does not work even in the short term, in early 2013 Krugman resorted to advocating the coining of a debt-free trillion dollar platinum coin to solve the debt crisis and revive the economy.<ref>[http://www.thenewamerican.com/economy/economics/item/14238-obama%E2%80%99s-trillion-dollar-coin-exposes-federal-reserve-scam Obama’s Trillion-Dollar Coin Exposes Federal Reserve Scam], Alex Newman, ''New American''</ref><ref>[http://webofdebt.wordpress.com/2013/01/18/the-trillion-dollar-coin-joke-or-game-changer/#more-5323 The Trillion Dollar Coin], Ellen Hodgson Brown</ref> Some Austrians have argued Krugman's support of the trillion dollar coin is the logical ''reductio ad absurdum'' of Keynesian economics.<ref>[http://bastiat.mises.org/2013/01/trillion-dollar-coins-and-alien-invasions/ Trillion Dollar Coins and Alien Invasions], Daniel Sanchez</ref>

===Inequities in the debt-based monetary system===
Many inequities arise because of the damage an overly leveraged financial system and big spending government can have on the real economy.<ref>[http://www.marketoracle.co.uk/Article26581.html Ten Reasons The Banksters Got Away With It], Danny Schechter</ref><ref>[http://www.marketoracle.co.uk/Article28949.html United States of Denial], James West</ref> The standard government strategy to help the banks out of the "tailspin" of an insolvency crisis follows a standard chronology:

The government first tries to stimulate the economy and spend money into the markets directly without individuals needing to borrow and spend, thereby "inflating" its way out of economic crisis by causing asset prices to rise and bank balance sheets to appear solvent. It currently does this principally by borrowing newly created money from the central bank and then spending this new money on projects that the private sector is not already engaged in.<ref>[http://www.marketoracle.co.uk/Article25964.html QE is Nothing New], Mike Hewitt</ref><ref>[http://www.mises.org/daily/6357/Feds-Policies-Expose-Mainstream-Fallacies Mainstream Fallacies], Frank Shostak</ref>

Unfortunately, there is no easy solution to an economy-wide insolvency crisis caused by excessive credit expansion.<ref>[http://www.zerohedge.com/news/2013-11-07/marc-faber-warns-karl-marx-was-right Karl Marx Was Right], Marc Faber</ref><ref>[http://www.prudentbear.com/index.php/creditbubblebulletinview?art_id=10511 Favorable or Unfavorable], Doug Noland, Prudent Bear</ref> In a sound money system the credit would not have been created, so dealing with the problem once created is inherently flawed. If a slow down of money and credit occurs, this exposes those who came late to the boom and transfers assets to the banking system via widespread insolvency. If the central bank encourages even more lending or the government spends more money this creates more distortions and uncertainties in the market, hampering long term investment. Government spending is often attempted as a way to stave off widespread insolvencies but this only further distorts the economy through widespread malinvestment.<ref>[http://mises.org/store/Rollback-P10449.aspx ''Rollback''], Thomas Woods</ref> Later, after the immediate crisis, when tax receipts from the private sector decline due to reduce private investment, governments are often forced to reduce basic social services or welfare to the poor to pay for the increased bond payments to bankers and other wealthy investors, making those least responsible and least able to pay for the crisis suffer wrenching economic hardship due to excessive public and private debt/credit creation.<ref>[http://www.marketoracle.co.uk/Article26581.html Ten Reasons The Banksters Got Away With It], Danny Schechter</ref><ref>[http://mises.org/store/Rollback-P10449.aspx ''Rollback''], Thomas Woods</ref>

Antal E. Fekete compares quantitative easing to the repeated supply of opium by an immoral drug dealer to a dependent drug addict:<ref>[http://www.marketoracle.co.uk/Article26339.html Silver and Opium], Antal E. Fekete</ref>

{{quote|The explanation for this self-destructing behavior is the addictive, debilitating and mind-corrosive nature of paper money, in direct analogy with that of opium. The high caused by administering the opium pipe to the patient (read: administering QE) had to be repeated when the effect faded by a fresh administration of more opium (read: more QE2).}}

Aside from the [[moral hazard]] issue, the key risk with [[quantitative easing]] is that the [[central bank]] exposes the financial system to disruptive inflation, as the growth in the [[money supply]] spirals out of control due to the need to save the [[bank]]s from themselves.<ref>[http://www.lewrockwell.com/north/north961.html Tiger], Gary North</ref><ref>[http://www.marketoracle.co.uk/Article27530.html The Fed Obliterates the Savings Ethic], Douglas French</ref> This eventually tends to precipitate a currency and/or government bond crisis, as the debt-based currency becomes completely dysfunctional when either the currency becomes worthless or when debtors - including government debtors - cannot even pay interest on the debt money.<ref>[http://www.marketoracle.co.uk/Article25964.html QE is Nothing New], Mike Hewitt</ref><ref>[http://www.marketoracle.co.uk/Article25313.html Asset Speculation and Capital Destruction], Jim Willie</ref><ref>[http://www.swlearning.com/economics/hall/hall-lieb2e-upd/ppt_lecture/exchange_rate_macro_policy.ppt Exchange Rates and Macroeconomic Policy]</ref><ref>[http://www.sciencedirect.com/science?_ob=ArticleURL&_udi=B6VGT-41WBFRG-1&_user=10&_rdoc=1&_fmt=&_orig=search&_sort=d&view=c&_acct=C000050221&_version=1&_urlVersion=0&_userid=10&md5=4e89075114dcdb58b503172ff1801bd2 Central Bank Intervention]</ref><ref>[http://www.federalreserve.gov/newsevents/speech/mishkin20071026a.htm Financial Instability and the Federal Reserve as a Liquidity Provider, by Frederic S. Mishkin]</ref>

For these reasons, a collapse in confidence in the [[solvency]] of the domestic banking system (and the central government) is one of the most complex and difficult policy issues any central government can face.<ref>[http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100008812/irelands-debt-servitude/ Ireland's Debt Servitude], Ambrose Evans-Pritchard, UK Telegraph</ref> If the central bank continues to try to save the current players in the banking sector by continually printing money and inflating its way out of the crisis, at some point hyperinflation suddenly appears, and has appeared many times in history.<ref>[http://mises.org/daily/4869 Can the Fed Become Insolvent?], Robert Murphy</ref><ref>[http://blog.mises.org/14626/quantitative-easing-explained/ Quantitative Easing Explained], YouTube video</ref>

Some commentators have observed that the media and the Fed have to constantly come up with new terms (such as "quantitative easing") to hide the fact that they are simply repeating the same failed policy of monetary inflation that corrupt sovereigns have deployed at the end of failed regimes many times over the millenia.<ref>[http://www.marketoracle.co.uk/Article25679.html Many Euphemisms for Money Creation], Thorsten Polleit</ref> This is also now referred to by some [[monetary reform]]ers and [[economist]]s as "socialism for the rich and capitalism for the poor", as many indebted [[consumers]] will still lose their [[house]]s and be declared [[bankrupt]] regardless whether or not the central bank intervenes to save marginal lenders who have been made [[insolvent]] through their mis-timing of the [[credit cycle]].<ref>[http://www.youtube.com/watch?v=ny6YI2JCP9Q&feature=player_embedded#at=147 Blood Starts Flowing on the Streets], Max Keiser interview with Gerald Celente</ref><ref>[http://www.rgemonitor.com/blog/roubini/228924/ Privatizing Profits and Socializing Losses, by Nouriel Roubini]</ref><ref>[http://www.beearly.com/pdfFiles/Satyajit%20Das.pdf Regulatory Debauchery by Satyajit Das]</ref> Future generations of innocent taxpayers may ultimately finance any [[bail out]] of reckless lenders, as the money used to fund any [[bail out]] will be funds diverted from the general revenue of the central government.<ref>[http://www.ft.com/cms/s/0/f4cf8426-654d-11dc-bf89-0000779fd2ac.html A run on the bank]</ref>

In times of crisis, some bankers still refer to [[Walter Bagehot]]'s 1873 commentary on monetary crises, ''Lombard Street'', in an attempt to gain insights into the way in which central bankers should revive illiquid banking systems.<ref>[http://www.prudentbear.com/index.php/thebearslairview?art_id=10513 The Evils of Crony Capitalism], Martin Hutchinson</ref><ref>[http://blogs.ft.com/economistsforum/2010/04/a-history-lesson-from-lombard-street-for-wall-street-in-2010/ History Lesson from Lombard Street], Roger Farmer, Ft.com</ref> However this old text may be outdated in circumstances where the community's debt limits have been reached and where the banking crisis arises from insolvency or environmental depletion rather than illiquidity.<ref>[http://www.youtube.com/watch?v=0KInB2rvgaY Eco Eco Disaster], Keiser Report</ref><ref name="Willie_Misdiagnosis" /><ref>[http://www.prudentbear.com/index.php/creditbubblebulletinview?art_id=10511 Favorable or Unfavorable], Doug Noland, Prudent Bear</ref> A prime example where aging demographics combined with reckless bank lending in a purely fiat debt-based monetary system resulted in economic problems which no amount of money printing or government spending could fix can be found in the case of the [[Japanese asset price bubble]].<ref>[http://www.economist.com/displaystory.cfm?story_id=10286992 The Japanese and American Bubbles: Been There, Done Some of That]</ref> Some believe the West will repeat the mistakes of the Japanese and the result will be worldwide monetary disorder and instability and economic decline.<ref>[http://dailyreckoning.com/destiny-is-demography/ Destiny is Demography], Bill Bonner</ref><ref>[http://www.economist.com/displaystory.cfm?story_id=10286992 The Japanese and American Bubbles: Been There, Done Some of That]</ref><ref>[http://www.prudentbear.com/index.php/creditbubblebulletinview?art_id=10508 Monetary Disorder], Doug Noland</ref><ref>[http://www.prudentbear.com/index.php/creditbubblebulletinview?art_id=10571 Crumbling Pillars], Doug Noland. Quote: "Whether it’s monetary or fiscal policy - at home or abroad – there seems to be confirmation everywhere that policymaking has become largely ineffectual and, increasingly, incapacitated. This is fundamental to my bearish thesis. With each passing market day it seems to take a greater leap of faith to believe that additional monetary and fiscal stimulus will ameliorate a sovereign debt crisis fomented by ultra-loose monetary and fiscal policies. Increasingly, it appears impossible for policies that fomented monetary instability to now somehow engender a return to market stability. Liquidity-challenged global markets are convulsing through a problematic period of de-risking and de-leveraging, and once such a process commences it basically has to run its course. Efforts to intervene in the marketplace, as we’ve been witnessing, are likely to beget only greater uncertainty and instability."</ref><ref>[http://www.youtube.com/watch?v=zbQq33iTsrw Rigged bank rates]</ref>

===Debt Saturation, Unstable Markets and the Keynesian Endpoint===

Keynesians often refer to Keynes' dictum "In the long run we are all dead" to justify artificially low interest rates and short-term stimulus spending by government to "kick start" a stalled economy where pre-existing private debt levels have caused spending to collapse. Tyler Cowen has responded to this Keynesian rejoinder with the following response:<ref>[http://www.nytimes.com/2011/03/06/business/06view.html The Fiscal Illusion], Tyler Cowan</ref>

{{quote|The famous Keynesian rejoinder, “In the long run we are all dead,” is less comforting when that long run comes into sight. Short-run planning is a hard carousel to stop, especially when there are frequent election cycles, but the federal government must act soon...

The technocratic Keynesian recommendation was to run deficits in bad times and surpluses in good times. But except for one stretch during the Clinton administration, this notion has been broken since the early 1980s. In the United States, at least, Keynesian economics has failed to find the necessary political institutions to enact and sustain a wise version of the theory.

Now that fiscal constraints are starting to bite, many politicians are afraid to reform or even to discuss changes in the largest problem areas...

Fiscal austerity may sometimes sound like a dogmatic religion, but fixed principles often help us do the right thing, especially when temptation beckons. Professor Buchanan argued that the real choice was between a religion of budget balance and a rule of illusion.

...the rigor of the numbers will soon sweep away the fiscal illusion. The only question is whether we will end the charade on our own terms or continue to play the fool.}}

Nassim Taleb posits that with increasing debt comes increasing fragility as markets end up standing on a "knife-edge" between precipitous currency devaluation due to money printing and widespread insolvency/depression due to slowing organic money supply growth.<ref>[http://www.zerohedge.com/news/2013-01-25/taleb-skin-game-and-his-disdain-public-intellectuals Nassim Taleb Interview on Anti-Fragile]</ref> It therefore becomes increasingly difficult for central banks to control volatility in heavily indebted world markets, until it ultimately becomes impossible to control.<ref>[http://www.zerohedge.com/news/2013-01-25/taleb-skin-game-and-his-disdain-public-intellectuals Nassim Taleb Interview on Anti-Fragile]</ref>

No current commentator predicts bankers, politicians or government employee unions will spontaneously reform themselves.<ref>[http://www.lewrockwell.com/lewrockwell-show/2011/03/27/193-gold-guns-and-getaway-plans/ Gerald Celente interview with Lew Rockwell]: Lew Rockwell: "When do you see social unrest coming to this country?" Gerald Celente: "I see more crime happening in this country, and social unrest at a much lower level. The people in this country don't have what it takes... This is a country of soccer mommies boys. We're prescription drug-addicted and we're junk food fat... Look at the way they dress, look at the way they talk, look how the Nation's become so Snooki-stupid."</ref> Noted commentator Bill Bonner and others have described politicians, welfare recipients, bankers and other tax beneficiaries as economic "zombies" obsessed with preserving their own coercively acquired incomes and unable to adapt to new economic realities. He has predicted that the "zombies" will continue to "steal" as much as possible and parasitically live off the productive efforts of others until the whole monetary system collapses.<ref>[http://dailyreckoning.com/the-coincidental-rise-of-oil-and-the-monetary-base/ The Coincidental Rise of Oil and the Monetary Base], Bill Bonner</ref><ref>[http://dailyreckoning.com/california-the-greece-of-the-us-financial-crisis/ California: The Greece of the U.S.], Bill Bonner</ref><ref>[http://dailyreckoning.com/zombies-born-of-government-spending/ Zombies Born of Government Spending], Bill Bonner</ref><ref>[http://www.zerohedge.com/article/not-program-salvage-greek-economy-its-program-pillage-bankruptcy Pillage Before Bankrupcty], Washington's Blog</ref> Some commentators have criticized so-called "zombie" bureaucracies such as the TSA as not only deadweights on the real productive economy, costing millions of tax dollars each year; their very existence hinders economic productivity.<ref>[http://mises.org/daily/5611/TSA-and-Unproductive-Labor TSA and Unproductive Labor], James E. Miller</ref> It is alleged that once these organizations are created and fed by government fiat, these "zombies" never die because there is no natural market mechanism to provide the necessary feedback signalling that they are unwanted by consumers. They grow only because they survive through government bureaucratic support and largesse - which comes from coercively acquired tax dollars or central bank produced fiat money. It is argued that the richest parasitic "zombies" (such as the CEOs and shareholders of the private security firms servicing the TSA's multi-million dollar government contracts) will continue to suck as much wealth from the productive economy as possible and then move on to the next host country with their real wealth converted into land, precious metals and jewels and other real assets.

The difficulty with any attempt at reform measures is that the "Ponzi" elements of finance are inextricably tied to pension funds and "real" elements in the economy, making it impossible to eliminate the "cancer" without damaging the wealth-creating structures as well.<ref>The term "cancer" is specifically mentioned in [http://www.pytheas.net/docs/Laissez-faire-and-policymakers.pdf Laissez-faire, investment banks and policy makers], Pytheas Market Focus, August 2009</ref><ref>[http://www.telegraph.co.uk/finance/comment/jeffrandall/8436123/We-must-call-the-bluff-of-the-big-bad-banks.html We must call the bluff of the big banks], Jeff Randall</ref><ref name="Repudiating the National Debt"/><ref>[http://www.youtube.com/watch?v=1zMv4Offm_8&feature=player_embedded#at=1341 Max Keiser Interview with Alex Jones]</ref><ref>[http://www.buildfreedom.com/tl/rape3.shtml Economic Rape of America]</ref><ref>[http://www.youtube.com/watch?v=zbQq33iTsrw Rigged bank rates]</ref> Commentator Max Keiser has also referred to "zombie" bankers as "The Walking Dead"<ref>[http://www.youtube.com/watch?v=23_S5etzSP0 Resident Evil Zombie Banks!]</ref> and has coined the term "Suicide Banking" to describe the paradoxical situation where virtually every politician and economist acknowledges that "Too Big To Fail" is a dysfunctional policy but no one has a viable solution, given that the banking system is "rigged to blow" if threatened.<ref>[http://www.youtube.com/watch?v=PCRXz5oOQVY&feature=player_embedded Suicide Bankers], Max Keiser</ref> He also refers to the current crisis as a fight to the death not between countries or ethnic groups or political ideologies but between future-oriented, prudent and conservative "Savers" on one side and present-focused, imprudent and overconsuming "Speculators" on the other.<ref>[http://www.youtube.com/watch?v=jzzIqi2sbQY&feature=player_embedded US flashing Orange]</ref>

Many non-mainstream financial commentators believe the U.S. and the E.U. will soon experience terminal financial crises, but there is vigorous on-going debate amongst numerous commentators regarding whether this terminal currency crisis will end in hyperinflation and currency destruction (making government bonds worthless) or repeated bouts of deflation and depression (making government bonds more valuable).<ref name="Landis_Reprieve" /><ref>[http://www.marketoracle.co.uk/Article28148.html How to Keep a Damaged Financial and Economic System Afloat?], Bob Chapman</ref><ref>[http://news.goldseek.com/GoldSeek/1305306000.php Winning in the Hyperinflation/Deflation War], Deepcaster LLC</ref><ref>[http://www.marketoracle.co.uk/Article27733.html Compound Inflation], John Mauldin</ref><ref>[http://www.lewrockwell.com/north/north973.html Rick Ackerman Defects], Gary North</ref><ref>[http://globaleconomicanalysis.blogspot.com/2011/04/no-miracle-cures-from-inflation.html Impossible to Inflate Out of this Mess], MISH</ref><ref>[http://globaleconomicanalysis.blogspot.com/2009/06/big-inflationist-scare.html The Big Inflationist Scare], MISH</ref><ref>[http://globaleconomicanalysis.blogspot.com/2010/09/debating-flat-earth-society-about.html Debating the Flat Earth Society About Hyperinflation], MISH</ref><ref>[http://globaleconomicanalysis.blogspot.com/2009/01/peter-schiff-was-wrong.html Peter Schiff Was Wrong], MISH</ref><ref>[http://www.marketoracle.co.uk/Article27726.html Deflation Threat is Still Alive], EWI</ref><ref>[http://www.marketoracle.co.uk/Article27791.html Can We Give The Hyperinflation Thing a Rest?], Mike Whitney</ref> Most - but not all - Austrian commentators now believe the denouement will inevitably result in hyperinflation and render the U.S. dollar near-worthless in real terms, as U.S. bond and dollar holders compete to offload excess holdings in the face of massive ongoing issuance.<ref>[http://www.marketoracle.co.uk/Article29393.html US Dollar Supply and Demand], Jim Willie CB</ref><ref>[http://fofoa.blogspot.com/2011/04/deflation-or-hyperinflation.html Deflation or Hyperinflation?], FOFOA</ref><ref>[http://maxkeiser.com/2011/04/25/ding-ding-ding-its-all-over-rick-ackerman-concedes-hes-been-wrong-and-joins-the-hyperinflationist-camp/ It's all over! Rick Ackerman Concedes!], Max Keiser</ref> Mike Shedlock and Antal E. Fekete are amongst a small group of deflationists who believe contracting credit will continue to have a deflationary impact on the economy, causing government bonds to become even more valuable over time.<ref>[http://globaleconomicanalysis.blogspot.com/2011/05/hyperinflation-nonsense-in-multiple.html Hyperinflation Nonsense], MISH</ref><ref>[http://globaleconomicanalysis.blogspot.com/2011/04/no-miracle-cures-from-inflation.html No Miracle Cures from Inflation], MISH</ref><ref>[http://www.julianmidwinter.com.au/ The Federal Reserve as an engine of deflation], Antal E. Fekete</ref><ref>[http://globaleconomicanalysis.blogspot.com.au/2012/08/preposterous-falsehoods-from-gary-north.html Falsehoods from Gary North], MISH</ref>

It should be noted that few hyperinflationists can explain the ''precise mechanism'' by which massive amounts of new credit money will be injected into the economy. There has been no detailed explanation from the hyperinflationists regarding how, with so few potential credit-worthy borrowers (including governments), the new money (via the issuance of new debt) will be injected into the economy in sufficient volume to trigger hyperinflation in the absence of extreme government policies (such Congress authorizing every citizen to be issued with $30,000 vouchers, or a civil war, or other natural catastrophe).<ref>[http://globaleconomicanalysis.blogspot.com/2011/09/bernankes-waterloo-midst-of.html Bernanke's Waterloo], Mike Shedlock</ref>

Gary North is one of the few Austrians who does not predict the extremes of either hyperinflation or deflationary depression, but rather expects a continuation of steady, moderate price inflation encouraged and controlled by the Federal Reserve, against a background of ongoing extreme boom-busts in the real economy and the slow but systemic impoverishment of the middle class.<ref>[http://lewrockwell.com/north/north1031.html Mass Inflation, Yes; Hyperinflation, No], Gary North</ref>

Austrian commentator Robert K. Landis believes there will be a combined deflationary/inflationary catastrophe.<ref>[http://www.goldensextant.com/SavingtheSystem.html Saving The System], Robert K. Landis</ref>

Leaving aside the debate between deflationists and hyperinflationists, and in stark contrast to the predictions of deflationary or hyperinflationary catastrophe from the Austrians, monetarist, Keynesian and neo-classical economists regard the current financial system as benign and the current financial distress as temporary and not structural in nature.<ref>[http://www.marketoracle.co.uk/Article35922.html Who do You Trust?], James Quinn</ref> Most advocate "tweaking" of government policy (such as temporary increases in government spending) to get us out of the current crisis. No mainstream economist identifies the problem as fundamental or structural and no mainstream economist advocates a return to full reserve banking, the gold standard or free banking. Indeed, most financial analysts still use the normal distribution - or "Bell Curve" - to represent the likely distribution of future returns in financial markets.<ref>[http://seekingalpha.com/article/163271-rethinking-alpha-and-beta Rethinking Alpha and Beta], Paul Amery</ref> This continues despite extensive research demonstrating that the normal distribution does not apply to financial market returns, which display so-called "fat tail" distributions, with much more volatlity at the extremes than the normal distribution would predict.<ref>[http://www.bearcave.com/bookrev/misbehavior_of_markets.html The Misbehavior of Markets], Ian Kaplan</ref> The Austrian view - that the economy will either slide into depression or hyperinflation under the stresses of the current debt-based monetary monetary system - may be supported by more recent analysis of actual financial market behavior under conditions of high debt and extreme stress.<ref>[http://mises.org/daily/5352/What-Mises-Can-Teach-the-Quants What Mises Can Teach the Quants], Daniel James Sanchez</ref><ref>[http://lewrockwell.com/north/north990.html The Next Financial Crisis], Gary North</ref><ref>[http://www.debtdeflation.com/blogs/2011/06/11/dude-where%E2%80%99s-my-recovery/ Where's My Recovery?], Steve Keen</ref> And recently even mainstream economists, such as senior IMF advisor Dr Robert Shapiro, now openly acknowledge that the inter-dependencies created by the issuance of Credit Default Swaps and other risk-related financial products by reckless under-capitalized banks has created a situation of extreme global financial vulnerability, where the world is only weeks away from a complete and total financial "meltdown".<ref>[http://maxkeiser.com/2011/10/07/imf-advisor-says-we-face-a-worldwide-banking-meltdown/ IMF Advisor Says We Face a Worldwide Banking Meltdown], BBC. Quote, Dr Robert Shapiro: "If they (EU governments) cannot address this in a credible way, I believe that in perhaps two to three weeks we will have a meltdown in sovereign debt which will produce a meltdown across the European banking system - we're not just talking about a relatively small Belgian bank - we're talking about the largest banks in the world - the largest banks in Germany, the largest banks in France - that will spread. It will spread to the United Kingdom - in part through sovereign debt problems in Ireland - it will spread ''everywhere'' because the global financial system is so inter-connected they are each counter...''all'' those banks are counter-parties to every significant bank in the United States and in Britain and in Japan and around the world! This would be a crisis that would be, in my view, more serious than the crisis in 2008."</ref> John Butler of Amphora has observed that "business cycles" have become "financial cycles" with central bank manipulation of markets, and these cycles have become increasingly violent and unstable, with shorter durations and increasing frequency.<ref>[http://maxkeiser.com/2013/05/16/kr445-keiser-report-sacred-dow/ Sacred Dow]</ref> To him, this signals the dying stages of a failed system, much like a spinning top slowing down and oscillating more frequently and more violently from side to side before coming to a sudden stop. According to John Butler, increases in stock prices are not a sign the economy is recovering, but is a sign of central bank-induced inflation - the first stages of currency collapse.<ref>[http://maxkeiser.com/2013/05/16/kr445-keiser-report-sacred-dow/ Sacred Dow]</ref>

Regardless whether the government chooses hyperinflation or periodic deflationary depression as the way out, throughout history, only two real alternatives occur in the midst of economic or financial crisis: ever greater centralization (often on a "higher level") or disintegration of the core power structures and (eventually) rejuvenation.<ref>[http://www.telegraph.co.uk/comment/columnists/janetdaley/8770696/The-European-dream-lies-in-ruins.html The European dream lies in ruins], Janet Daley, UK Telegraph</ref><ref>[http://www.zerohedge.com/article/greeces-ultimatum-bailout-bankers-or-loss-sovereignty Greece's Ultimatum], ZeroHedge</ref><ref>[http://www.lewrockwell.com/north/north966.html Wealth Through Decentralization], Gary North</ref><ref>[http://mises.org/store/Rollback-P10449.aspx ''Rollback''], Thomas Woods</ref><ref>[http://blog.mises.org/9321/crisis-and-leviathan/ Crisis and Leviathan], Robert Higgs</ref><ref>[http://mises.org/store/Money-Bank-Credit-and-Economic-Cycles-P290C0.aspx Money, Bank Credit and Economic Cycles], Jesus Huerta de Soto, Mises Institute ISBN: 978-1-933550-39-8</ref><ref>[http://mises.org/store/Meltdown-P557.aspx ''Meltdown''], Tom Woods, Regnery Press ISBN: 9781596985872</ref><ref>[http://mises.org/media/4014 The Economics of Legal Tender Laws], [[Jorg Guido Hulsmann]] (includes detailed commentary on centralization during crises)</ref><ref>[http://www.amazon.com/Warwolves-Iron-Cross-International-Relationships/dp/146358380X/ref=sr_1_33?ie=UTF8&qid=1316347713&sr=8-33 Warwolves of the Iron Cross], Veronica Kuzniar Clark</ref> Accordingly, many of the more extreme monetary reformers and [[conspiracy theorists]] anticipate repeated and ever more desperate attempts at ''higher-order centralization'',<ref>[http://www.telegraph.co.uk/comment/columnists/janetdaley/8770696/The-European-dream-lies-in-ruins.html The European dream lies in ruins], Janet Daley, UK Telegraph</ref><ref>[http://www.marketoracle.co.uk/Article27051.html A New World Currency?], Ellen Hodgson Brown</ref> as the existing co-ordinated state-based central bank architecture becomes discredited through repeated economic failure and environmental crises caused by the need for unsustainable exponential debt-driven economic "growth" within the current debt-based financial architecture.<ref>[http://www.zerohedge.com/article/guest-post-economic-abyss The Economic Abyss], Brandon Smith</ref> This centralization is anticipated to include the empowerment of the UN to increasingly intervene in the domestic political affairs of nations,<ref>[http://www.lewrockwell.com/rozeff/rozeff343.html World Government], Mike Rozeff</ref> the IMF and EU to increasingly intervene in the domestic financial affairs of member nations,<ref>[http://www.telegraph.co.uk/comment/columnists/janetdaley/8770696/The-European-dream-lies-in-ruins.html The European dream lies in ruins], Janet Daley, UK Telegraph</ref><ref>[http://www.zerohedge.com/article/greeces-ultimatum-bailout-bankers-or-loss-sovereignty Greece's Ultimatum], ZeroHedge</ref><ref>[http://globaleconomicanalysis.blogspot.com/2010/11/terms-of-enslavement-irish-citizens-say.html Terms of Enslavement], MISH</ref><ref>[http://globaleconomicanalysis.blogspot.com/2010/11/imf-ready-to-help-ireland-can-imf-help.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+MishsGlobalEconomicTrendAnalysis+%28Mish%27s+Global+Economic+Trend+Analysis%29 Can the IMF help anyone?], MISH</ref><ref>[http://www.telegraph.co.uk/finance/financialcrisis/8150137/Ireland-forced-to-take-EU-and-IMF-bail-out-package.html Ireland forced to take IMF bailout package], Telegraph</ref> and the declaration of [[martial law]] and the imposition of [[fascist]]-style restrictions on [[civil rights]]<ref>[http://www.zerohedge.com/article/guest-post-us-monetary-system-and-descent-fascism-interview-dr-edwin-vieira The U.S. Monetary System and Descent Into Fascism], Dr Edwin Vieir</ref><ref>[http://english.aljazeera.net/indepth/opinion/2011/04/201142612714539672.html Global capitalism and 21st cenury fascism], William I. Robinson</ref><ref>[http://www.lewrockwell.com/rep2/jesse-ventura-on-tsa-abusers.html Jesse Ventura on the TSA' Sexual Abusers]</ref> and [[freedom of speech]] by the political [[The Establishment|Establishment]] to physically protect it from [[anarchy]] or military [[coup]] when the [[bubble (economics)|bubble]] of debt completely bursts, through a precipitous currency crisis, debt-created [[Depression (economics)|depression]], environmental crisis or oil shortage.<ref>[http://www.marketoracle.co.uk/Article26605.html Population Reduction], Chris Kitze</ref><ref>[http://jsmineset.com/2011/02/24/in-the-news-today-791/ Collapse]</ref><ref>[http://www.lewrockwell.com/lewrockwell-show/2010/12/14/179-the-espionage-act-and-the-death-of-american-freedoms/ Death of American Freedoms], Naomi Wolf, LRC interview, Dec 14, 2010</ref><ref>[http://www.house.gov/paul/congrec/congrec2007/cr120507h.htm New security legislation threats freedoms]</ref><ref>[http://www.marketoracle.co.uk/Article26325.html Bank Credit Ends in Catastrophe], Richard Daughty, The Mogambo Guru</ref> Ultimately this is anticipated to yield either repressive world government<ref>[http://www.zerohedge.com/news/2013-01-31/guest-post-linchpin-lie-how-global-collapse-will-be-sold-masses The Linchpin Lie]</ref> or chaos (or most likely both), with a world central bank stationed in Basel, Switzerland.<ref>[http://www.zerohedge.com/news/2013-05-03/monarchs-money Monarchs of Money]</ref><ref>[http://www.youtube.com/watch?v=VMngK0t5WkY Max Keiser]</ref><ref>[http://www.marketoracle.co.uk/Article28533.html The Global Debt Crisis], Ellen Hodgson Brown</ref><ref>[http://www.marketoracle.co.uk/Article27051.html A New World Currency?], Ellen Hodgson Brown</ref><ref>[http://www.marketoracle.co.uk/Article27554.html Libya War All About Oil or Gold and Banking?], Ellen Hodgson Brown</ref><ref>[http://blog.mises.org/9321/crisis-and-leviathan/ Crisis and Leviathan], Robert Higgs</ref> During this transition period, some analysts and conspiracy theorists anticipate multiple wars to force governments into the BIS financial "net",<ref>[http://www.youtube.com/watch?v=VMngK0t5WkY Max Keiser]</ref><ref>[http://www.marketoracle.co.uk/Article28533.html The Global Debt Crisis], Ellen Hodgson Brown</ref><ref>[http://www.marketoracle.co.uk/Article27051.html A New World Currency?], Ellen Hodgson Brown</ref><ref>[http://www.marketoracle.co.uk/Article27554.html Libya Ware All About Oil or Gold and Banking?], Ellen Hodgson Brown</ref> impotent and counterproductive price controls,<ref>[http://globaleconomicanalysis.blogspot.com/2011/03/food-prices-rise-11-in-china-overall.html Chinese inflation], MISH</ref><ref>[http://www.lewrockwell.com/goyette/goyette18.1.html Too Late!], Charles Goyette</ref> repeated sell-offs of monopoly state assets in a desperate attempt to feed private domestic banks with steady, coercively acquired income to keep the value of government bonds collapsing,<ref>[http://globaleconomicanalysis.blogspot.com/2011/05/whos-bigger-socialist-president-obama.html Who's the Bigger Socialist?], MISH</ref> and then, once this attempt (to feed unsustainable compounding debt with any remaining basic infrastructure) destroys any remaining parts of the productive economy, there will be in the end coercively enforced rationing of basic essentials to ensure continued supply of food and oil to senior government officials, bankers and their associates amidst widespread general starvation and chaos,<ref>[http://www.technologyreview.com/blog/arxiv/27083/?p1=blogs Food prices and Riots]</ref><ref>[http://www.marketoracle.co.uk/Article26605.html Population Reduction], Chris Kitze</ref> as the coalescence of a corrupt banker-government coalition solidifies<ref>[http://www.zerohedge.com/news/2013-01-31/guest-post-linchpin-lie-how-global-collapse-will-be-sold-masses The Linchpin Lie]</ref><ref>[http://maxkeiser.com/2011/04/28/kr142-keiser-report-blind-cult-of-america/ Blind Cult of America]. Quote: Max Keiser: "Yes, it's beyond religious fervor. That's the point. It's become this echo chamber, cult-like 'America can't fail' which is very endemic when you see suicide cults. Remember Jim Jones. Remember him. The Kool Aid. He made the idea of drinking Kool Aid... he popularized that notion. Everyone committed suicide in Guyana. Or the Hail-Bot Comet Cult. Here you've got 300 million Americans who are worshiping this idea of 'American-style' Free Market Capitalism that doesn't exist. They support market manipulation on Wall Street and they're all gonna ''die'' as a result. Now that's less than 5% of the world's population. It is 25% of the world's garbage so the world will breathe a sigh of relief, but, as far as those living inside they don't really understand that they're being used as cult fodder." Stacy Herbert: "The equivalent of drinking the cyanide-laced Kool Aid would be purchasing a McMansion with a sub-prime mortgage. This is them committing suicide. It's the equivalent of drinking cyanide-laced Kool Aid." Max Keiser: "It's financial suicide. As we've talked about. Financialization of the economy has turned into this hybrid reality that combines political malfeasance with financial larceny and that's the combination between Obama's White House and Wall Street merging together into something even more insidious than fascism. It's a Klepto-F*@kingSh*tism. It's a... it's a Klepto-Sh*tism is the current political-financial school of thought in America today and it's not working. It's unsustainable."</ref> to eliminate potential dissent and ensure the forced elimination - by any means necessary - of any actual or potential competing [[currencies]] that could threaten the viability or legitimacy of the [[monopoly]] currency, which could include war against any country considering using any currency other than US dollars to price essential commodities such as oil <ref>[http://www.lewrockwell.com/holland/holland44.1.html Anglo-American Deception], Ron Holland</ref> and the compulsory confiscation of all privately-owned [[gold]] (gold being the ultimate reserve currency, still used by central banks as a universally accepted medium of exchange for the settlement of international debts).<ref>[http://mises.org/daily/5184/The-Crime-of-Private-Money The "Crime" of Private Money], Robert Murphy</ref><ref>[http://www.zerohedge.com/article/guest-post-thoughts-liberty-dollar-debacle Liberty Dollar], ZeroHedge.com</ref><ref>[http://blog.mises.org/14795/the-gold-clause-cases-and-constitutional-necessity/ Gold Clause Cases]</ref><ref>[http://news.goldseek.com/GoldSeek/1196605589.php America's Trade Debts Lead to a Likely Gold Confiscation]</ref><ref>[http://www.libertydollar.org/ld/legal/raid.htm FBI Raids Liberty Dollar]</ref><ref>[http://www.lewrockwell.com/rothbard/solution.html The Solution]</ref><ref>[http://prudentinvestor.blogspot.com/2007/09/us-mint-suspends-gold-coin-sales-due-to.html US Mint Suspends Gold Coin Sales]</ref><ref>[http://www.swissamerica.com/article.php?art=06-2004/200406140537f.txt Why a Gold Standard Now?]</ref><ref>[http://www.lewrockwell.com/blog/lewrw/archives/73468.html Bank of America an arm of US government policy]</ref><ref>[http://www.marketoracle.co.uk/Article26325.html Bank Credit Ends in Catastrophe], Richard Daughty, The Mogambo Guru</ref><ref>[http://www.sovereignman.com/expat/bernanke-terrorist Bernanke is the domestic terrorist], Sovereign Man</ref><ref>[http://www.marketoracle.co.uk/Article28225.html DSK Was Trying to Torpedo the Dollar], Mike Whitney</ref>

Some have speculated that the overthrow and attempted assassination of Col. Gaddafi and his family in 2011 Libyan "civil war" was triggered by Col. Gaddafi's open (and unwise) attempt to price Libya's oil in gold, which is the reaction many would expect for a country that "dared" to price an essential commodity in anything other than a Western paper currency.<ref>[http://www.youtube.com/watch?v=GuqZfaj34nc&feature=player_embedded#! Gaddafi: Gold for Oil?], RTTV</ref><ref>[http://www.youtube.com/watch?v=8lnslMWhOTw&list=SPC3F29DDAA1BABFCF&index=194 Welcome Home German Gold], Max Keiser</ref>

There have been many [[financial crisis|monetary crises]] throughout history.<ref>[http://www.zerohedge.com/news/2013-02-26/trust-me-time-different Trust Me This Time Is Different]</ref><ref>[http://www.delanion.com/main/dom.htm Fiat Money Inflation in France], Gold Money video featuring Max Keiser, James Turk and Pierre Jovanovic</ref><ref>[http://www.delanion.com/main/dom.htm Dying of Money], Jens O. Parsson</ref><ref>[http://www.delanion.com/main/dom.htm Dying of Money], Jens O. Parsson</ref><ref name="Bonner_Swan">[http://www.lewrockwell.com/bonner/bonner454.html Revolution in Egypt and Black Swans], Bill Bonner, February 15, 2011.</ref><ref>[http://news.goldseek.com/GoldSeek/1297199137.php China Inflation and Gold], Darryl Robert Schoon</ref><ref>[http://mises.org/store/Early-Speculative-Bubbles-P578.aspx Early Speculative Bubbles and Increases in the Money Supply], Doug French, Mises Institute ISBN: 978-1-933550-44-2</ref><ref>[http://dailyreckoning.com/a-word-of-advice-to-financial-authorities/ Advice to Financial Authorities], Bill Bonner</ref><ref>[http://www.marketoracle.co.uk/Article26325.html Bank Credit Ends in Catastrophe], Richard Daughty, The Mogambo Guru</ref> Some commentators have noted that our present system and the strategies attempted by governments to reflate the economy closely resemble the failed theories of John Law and the Mississippi bubble of the early 18th century.<ref>[http://www.economist.com/node/14215012 Law of easy money], ''The Economist''</ref> There are a number of standard warning signs of impending depression or hyperinflation caused by a complete breakdown of trust in any [[monetary system]].<ref>[http://mises.org/store/Product.aspx?ProductId=435 Fiat Money Inflation in France], Andrew Dickson White, Mises Institute</ref><ref>[http://www.marketoracle.co.uk/Article25313.html Asset Speculation and Capital Destruction], Jim Willie</ref><ref>[http://www.zerohedge.com/article/guest-post-economic-abyss The Economic Abyss], Brandon Smith</ref><ref>[http://lewrockwell.com/orig12/martenson8.1.1.html Argentina: A Case Study], Chris Martenson and FerFAL</ref> Just prior to the complete collapse of the [[pyramid scheme]] of public and private debt, the economic system tends to feed on itself, and in the past, where debt-created [[Depression (economics)|depression]]s or periods of [[hyperinflation]] have occurred in [[Europe]],<ref name="Bonner_Swan" /> the [[U.S.]] and [[China]], there has been a sustained spike in predatory economic behavior, as the heavily indebted central government and producers are forced to find more extreme (previously considered unethical) methods to extract any remaining wealth from increasingly desperate and impoverished [[consumers]], who are either unwilling or unable to go into further debt without forceful coercion.<ref>[http://www.zerohedge.com/article/guest-post-ethics-mortgage-loan-default The Ethics of Mortgage Loan Default], Greg Lemelson</ref><ref name="Bonner_Swan" /><ref name="http">{{cite book |last= Widdig |first= Bernd |title= Culture and Inflation in Weimar Germany |url= http://books.google.com/books/ucpress?id=kvKAATycUzIC |accessdate= 2007-12-16 |year= 2001 |publisher= University of California
Press |isbn= 0520222903 }}</ref><ref>[http://mises.org/daily/3569 John Law and the Invention of Modern Finance], Doug French (Mises.org)</ref><ref>[http://mises.org/daily/1690 The Saga of John Law and Richard Cantillon], Sean Corrigan (Mises.org)</ref> [[Long-term]] investment and sustained [[capital investment]] are almost impossible in this environment because the "measuring stick" of [[return on investment]] (the real value of [[money]]) is so uncertain at times of debt-induced [[credit crunch]], depression or hyperinflation.<ref>[http://www.marketoracle.co.uk/Article25313.html Asset Speculation and Capital Destruction], Jim Willie</ref>

As potential new [[borrower]]s and international financiers are scared away from participating in the [[pyramid scheme]] of debt and borrowing further, the [[monetary system]] seizes up, starved of the fresh injections of [[debt money]] it needs for its survival, thereby precipitating economic [[anarchy]],<ref name="Bonner_Swan" /><ref>[http://www.zerohedge.com/article/guest-post-economic-abyss The Economic Abyss], Brandon Smith</ref> widespread [[lawlessness]]<ref name="Bonner_Swan" /> and [[insolvency]] of the monetary and banking system.<ref>[http://www.youtube.com/watch?v=FPxYg6mgGpE Inflation is There], Peter Schiff</ref><ref>[http://www.oftwominds.com/blognov07/empire-debt1.html Empire of Debt]</ref><ref name="Landis_Reprieve" /><ref>[http://www.marketoracle.co.uk/Article25313.html Asset Speculation and Capital Destruction], Jim Willie</ref><ref name="Bonner_Swan" /> Some have described the moment when governments cannot borrow any more from banks to keep up the growth in debt money as the "Keynesian Endpoint" or "Keynesian Endgame" or point of "Debt Saturation" - which is the point in time when ''in extremis ''"emergency" measures by the government to kick-start the economy by increasing total gross debt have no lasting positive effect on GDP.<ref>[http://www.zerohedge.com/article/guest-post-economic-death-spiral-has-been-triggered The Economic Death Spiral], Gordon T. Long</ref><ref>[http://www.zerohedge.com/article/charting-ten-year-prelude-keynesian-endgame Keynesian Endgame], ZeroHedge</ref><ref>[http://en.wikipedia.org/wiki/Keynesian_endpoint Keynesian Endpoint], Wikipedia definition</ref><ref>[http://www.marketoracle.co.uk/Article27801.html U.S. Debt Saturation and Money Illusion], Gordon T. Long</ref> Antal E. Fekete identifies this "crisis" point as the point when the marginal increase in total gross debt has no positive marginal effect on GDP.<ref>[http://www.professorfekete.com/articles/AEFGotterdammerung.pdf Gotterdammerung], Antal E. Fekete</ref> According to Professor Fekete, once the marginal productivity of debt turns negative, a disastrous depression is inevitable.<ref>[http://www.professorfekete.com/articles/AEFGotterdammerung.pdf Gotterdammerung], Antal E. Fekete</ref>

Recent studies have indicated that debt turns toxic at between 80 and 100 percent of GDP. Beyond this, further increases in debt reduce GDP rather than stimulate it.<ref>[http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100011744/when-debt-levels-turn-cancerous/ When Debt Levels Turn Cancerous], Ambrose Evans-Pritchard</ref>

This final denouement is triggered when [[borrower]]s cannot be found to buy depreciating, already-indebted, assets, and international financiers reduce lending as they experience losses on pre-existing loans either through asset or currency [[depreciation]].<ref>[http://www.youtube.com/watch?v=FPxYg6mgGpE Inflation is There], Peter Schiff</ref> Some analysts predict that the [[monetary system]] will seize up due to a [[deflationary]] depression<ref>[http://www.zerohedge.com/article/guest-post-heres-setup-con-decade The Con of the Decade], ZeroHedge</ref> or a sustained period of [[stagflation]]ary hyperinflation resulting in a "final and total catastrophe of our fiat monetary system."<ref name="Landis_Reprieve" /><ref>[http://www.marketoracle.co.uk/Article25313.html Asset Speculation and Capital Destruction], Jim Willie</ref><ref>[http://www.youtube.com/watch?v=FPxYg6mgGpE Inflation is There], Peter Schiff</ref><ref>[http://www.marketoracle.co.uk/Article27402.html Deflationists Blind to Inflationary Storm], Jim Willie</ref><ref>[http://www.marketoracle.co.uk/Article27466.html Compounding Debt]</ref>

Examples of debt and monetary crises can often be found after failed wars, when international financiers realize the heavily indebted [[government]] they funded will not gain the resources it planned to seize as a result of the waging of aggressive war. When this pay-off does not materialize, the losing government is left with the debt of war without the ability to offset this government debt through the imposition of reparations on the defeated nation and the acquisition of the defeated state's resources, thereby boosting the victorious state's GDP and tax revenues. This sudden monetary collapse occurred to [[Germany]] after the [[First World War]] and [[Japan]] after the [[Second World War]].

Whatever the trigger, the key warning sign of any impending monetary crisis and economic [[anarchy]] is a sudden [[currency crisis]], or a sudden spike in domestic interest rates, or a sudden [[credit crunch]] or the announcement of a bank holiday.<ref>[http://mises.org/daily/6400/Lessons-from-Cyprus Lessons from Cyprus]</ref><ref name="Landis_Reprieve" /> Early warning signs that the [[private banks]] themselves are aware of an impending breakdown in the [[solvency]] of the [[financial system]] would be any combination of some or all the following: a spike in the [[oil]] price (which is an internationally accepted, inherently limited, store of value, and therefore can act as a modern form of [[hard currency]], oil sometimes being referred to as "black gold"), "backwardation" in [[gold]],<ref>[http://www.zerohedge.com/news/2013-02-22/gold-and-potential-dollar-endgame-part-3-backwardation-and-gold Gold and the Potential Dollar Endgame]</ref><ref>[http://www.minyanville.com/businessmarkets/articles/gold-spot-price-gold-prices-gold/5/10/2011/id/34441?camp=syndication&medium=portals&from=yahoo Permanent Gold Backwardation: Why a "Crack Up Boom" Is Inevitable], Keith Weiner</ref> and [[silver]]<ref>[http://www.youtube.com/watch?v=021yEhjPDa0&feature=player_embedded#at=826 $400 Ounce Silver, $8000 Ounce Gold], James Turk</ref><ref>[http://www.youtube.com/watch?v=FPxYg6mgGpE Inflation is There], Peter Schiff</ref> and sudden price spikes in other stable, non-perishable, inherently limited [[natural resources]] essential for non-discretionary industrial production;<ref>[http://www.marketoracle.co.uk/Article25313.html Asset Speculation and Capital Destruction], Jim Willie</ref> a spike in the [[futures contract]]s for vital agricultural [[commodities]]<ref>[http://www.marketwatch.com/story/fed-dictator-bernanke-needs-to-be-toppled-2011-02-15 Fed dictator Bernanke needs to be toppled], Paul B. Farrell</ref><ref>January 27, 2011 – ''Financial Times'' (Javier Blas and Chris Giles): “Governments across the developing world are stockpiling food staples in an attempt to contain panic buying, inflation and social unrest. But the hoarding is driving agricultural commodity prices even higher. The cost of wheat, the world’s most important staple, reached a fresh two-and-a-half-year high on Thursday, after countries from Algeria to Saudi Arabia announced extraordinary purchases. High food prices have been a contributing factor to the recent wave of social unrest across North Africa and the Middle East. In Algeria earlier this month, young rioters chanted ‘Bring us sugar!’ The cost of the sweetener in the wholesale market is at its highest in 30 years. Earlier this week, Algeria bought 800,000 tonnes of wheat – much more than usual – and Saudi Arabia announced plans to double the size of its wheat stockpile. Bangladesh and Indonesia joined the rush on Thursday, placing extraordinary on rice orders.”</ref> such as [[sugar]],<ref>[http://www.bloomberg.com/news/2010-12-15/portugal-tries-to-prevent-sugar-hoarding-amid-shortage-ft-says.html 2010 Portugal Sugar Crisis]</ref> [[corn]], [[wheat]], [[soybean]]s and [[rice]], as investors realize the debt-based monetary system has squeezed supplies of [[arable land]];<ref>[http://webofdebt.wordpress.com/2011/02/03/the-egyptian-tinderbox-how-banks-and-investors-are-starving-the-third-world/#more-1052 Banks and investors are starving the Third World], Ellen Hodgson Brown</ref><ref>[http://www.preparednesspro.com/blog/food-shortage-series-part-1/ Food Shortage Series],Kellene Bishop</ref><ref>[http://www.smh.com.au/environment/world-hungers-for-more-food-20110402-1csbh.html World hungers for more food], Sydney Morning Herald,</ref> a sudden flight of money ''to'' [[Treasury bills]] and/or a sudden spike in the [[interest rate]] differential between short-term [[Treasury bills]] and asset-backed corporate paper (or a sudden spike in the [[LIBOR]] rate in [[London]])<ref name="Landis_Reprieve" /><ref>[http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/12/03/cnrates103.xml&CMP=ILC-mostviewedbox Pleas for rate cut as interbank loans dive]</ref> - and then, in the very late stages of a credit crisis, a sudden and disorderly flight of money ''away from'' government bonds and a "shock" or "panic" collapse in government bond prices, as banks perceive that some governments will ultimately find it ''impossible'' to pay interest on their debt from coercively acquired taxes.<ref>[http://www.youtube.com/watch?v=SgNLTb58K_Y S&P Rating on US Sovereign Debt not Low Enough], Peter Schiff</ref><ref>[http://www.telegraph.co.uk/finance/economics/8190059/Global-bond-rout-deepens-on-US-fiscal-worries.html Global bond rout], Ambrose Evans-Pritchard, UK Telegraph</ref><ref>[http://www.prudentbear.com/index.php/thebearslairview?art_id=10480 When Will The U.S. Become Greece?], Michael Hutchinson</ref>

Shortly thereafter, some [[monetary reform]]ers predict that there would be desperate, but ultimately futile [[central bank]] intervention involving massive, repeated bouts of "quantitative easing",<ref>[http://www.zerohedge.com/article/did-fed-its-stealthy-synthetic-bet-keep-yields-low-become-next-aig Doubling Down], ZeroHedge</ref> then a [[currency crisis]],<ref>[http://www.zerohedge.com/article/jim-grant-inflation-there-will-be-lot-it-suddenly-because-our-interest-rate-structure-beyond Jim Grant on Inflation], ZeroHedge</ref> then a panic run on a number of marginal, [[insolvent]] [[banks]] and [[hedge funds]] as desperate wealthy investors try to get [[cash]] out before the [[pyramid scheme]]<ref>[http://www.youtube.com/watch?v=FPxYg6mgGpE Inflation is There], Peter Schiff</ref> collapses to invest in inherently limited, non-perishable, in-demand commodities such as [[oil]] and [[gold]]<ref>[http://www.professorfekete.com/articles/AEFAmericanBasesGermanyGoldBasis.pdf The Gold Basis], Antal E Fekete]</ref><ref>[http://www.zerohedge.com/article/golden-tipping-point-university-texas-takes-delivery-1-billion-physical-gold A Golden Tipping Point], ZeroHedge</ref><ref>[http://www.youtube.com/watch?v=FPxYg6mgGpE Inflation is There], Peter Schiff</ref><ref>[http://www.marketoracle.co.uk/Article25313.html Asset Speculation and Capital Destruction], Jim Willie</ref> (and undeveloped agricultural and industrial [[land]] in areas of the world with strong [[economic growth]]),<ref>[http://www.nytimes.com/2011/03/04/business/04farms.html?_r=1&hp Price of Farmland] NYTimes</ref> followed by a [[recession]] or [[depression]] in the broader heavily indebted economy as [[money supply|credit]] contracts but base money continues to rise exponentially.<ref>[http://www.marketoracle.co.uk/Article27172.html Why QE has NOT brought back inflation], EWI</ref><ref name="Landis_Reprieve" /><ref>[http://www.marketoracle.co.uk/Article25313.html Asset Speculation and Capital Destruction], Jim Willie</ref><ref>[http://www.newyorkfed.org/research/staff_reports/sr291.pdf Hedge Funds, Financial Intermediation and Systemic Risk]</ref><ref>[http://jsmineset.com/2011/02/24/in-the-news-today-791/ Collapse]</ref><ref>[http://www.marketoracle.co.uk/Article27596.html US Accelerating Inflation Mega-Trend], Nadeem Walayat</ref>

Historically, during periods of monetary disorder, a predator-prey mentality generally grips society, with parasitic or predatory activity being witnessed, eating away at the last vestiges of the middle class.<ref>[http://www.goldonomic.com/When%20Money%20Dies.pdf When Money Dies], Adam Fergusson</ref> In such circumstances the following activities continue to be profitable and proliferate during monetary disorder: international banking and financial services to the wealthy elite, to assist in secreting their assets outside the jurisdiction; drug trafficking and distribution to ease the psychological stress on those slipping down the social ladder into poverty and homelessness; security and protection services to the wealthy; entertainment services to the wealthy, including gambling, prostitution (male, female and child) and "exclusive" nightclubs and bars servicing the wealthy; luxury imported goods and services; military and defense contracting and procurement (as a form of high-level security services for elite government employees), propaganda and media services defending and glorifying and legitimizing the State; and all forms of coercive government activity generally (as the tendency towards fascist-style controls feeds on itself in a positive feedback loop around a triangle of increasing government employee numbers scared away from the shrinking private sector, a banking industry supporting government jobs and big business and defense contracting supporting and feeding both).<ref>[http://www.zerohedge.com/news/2013-05-22/greek-prostitution-soars-150-youth-unempoyment-hits-75-some-areas Greek Prostitution Soars By 150%]</ref><ref>[http://www.goldonomic.com/When%20Money%20Dies.pdf When Money Dies], Adam Fergusson</ref><ref>[http://books.google.com.au/books?id=kvKAATycUzIC&pg=PA197&lpg=PA197&dq=prostitution+modernism+weimar+germany+hyperinflation&source=bl&ots=DaJiHnllDu&sig=Acfme5660DBUC6Xw5XLdoke5IE4&hl=en&ei=fOB1Tor1BsXRmAWSoYn0DA&sa=X&oi=book_result&ct=result&resnum=5&ved=0CD4Q6AEwBDgK#v=onepage&q&f=false Culture and Inflation in Weimar Germany], Bernd Widdig</ref><ref>[http://www.businessinsider.com/finance-guy-in-london-explains-how-to-order-cocaine-from-a-restaurant-2011-9#ixzz1Y2MQUyzJ London Banker explains how to order cocaine from London restaurant]</ref><ref>[http://www.alternet.org/story/152446/inside_the_trillion-dollar_underground_economy_keeping_many_americans_%28barely%29_afloat_in_desperate_times?page=entire Inside the Underground Economy]</ref>

It should be noted that in 2011 banks started paying police directly, presumably to ensure protection from the public should widespread protests commence against their alleged [[embezzlement]] activities.<ref>[http://lewrockwell.com/wenzel/wenzel132.html Banksters Running Scared]</ref>

In 2010 Ireland and Greece experienced similar financial crises along the lines described above and many financial commentators and politicians expect more countries to go through the same debt crisis.<ref>[http://globaleconomicanalysis.blogspot.com/2010/12/video-fire-bombs-stones-fly-in-greek.html Greek protests]</ref><ref>[http://www.youtube.com/watch?v=2gm9q8uabTs "Who the Hell do you think you people are?"], Nigel Farage, UKIP leader</ref><ref>[http://www.marketoracle.co.uk/Article25313.html Asset Speculation and Capital Destruction], Jim Willie</ref> In 2011, Tunisia experienced a financial and political crisis that was almost identical to those already experienced on the poorer European periphery, except that in this case the pre-existing political establishment quickly fled the country in fear for their safety - with some allegations that the wife of the deposed leader, Leila Trabelsi, ordered the country's central bank to transfer 1.5 tonnes of [[gold]] to Zine El Abidine Ben Ali and his family.<ref>[http://www.marketoracle.co.uk/Article25636.html We are all Tunisians], Yvonne Ridley</ref><ref>[http://www.heraldsun.com.au/news/breaking-news/tunisia-missing-15-tonnes-of-gold/story-e6frf7jx-1225992107457 Tunisia missing 1.5 tonnes of gold], Herald Sun</ref> The Egyptian uprising resulted in Hosni Mubarek fleeing after desperate attempts were made by him and his associates to preserve his family's wealth and power.<ref>[http://news.yahoo.com/s/ap/20110212/ap_on_re_mi_ea/ml_egypt_mubarak_s_final_hours Mubarak's final hours], Associated Press</ref> Several newspapers have reported that, once again, appropriating the nation's gold reserves was a major priority for the fallen leader.<ref>[http://www.smh.com.au/world/mubaraks-lastminute-rush-to-hide-his-billions-20110213-1as1c.html Mubarak's Rush to Hide Billions], SMH</ref> Following the overthrow of the ruling elites in Tunisia and Egypt, other North African countries have experienced similar uprisings - all attributable to higher food prices, according to some noted commentators,<ref>[http://www.telegraph.co.uk/finance/economics/8492078/How-the-Fed-triggered-the-Arab-Spring-uprisings-in-two-easy-graphs.html How the Fed triggered the Arab Spring uprisings], Andrew Lilico</ref> who have accused Fed Chairman Ben Bernanke of literally having "blood on his hands" due to the encouragement of food price inflation via sustained inflationary loose-monetary policies.<ref>[http://globaleconomicanalysis.blogspot.com/2011/01/blood-on-bernankes-hands-riots-in-egypt.html Blood on Bernanke's Hands], MISH</ref><ref>[http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2011/4/6_Marc_Faber_-_Mr._Bernanke_is_a_Murderer_of_the_Middle_Class.html Marc Faber calls Mr Bernanke a Murderer of the Middle Class], King World News</ref><ref>[http://www.youtube.com/watch?v=V3NdUU1wWa4&feature=player_embedded#at=89 Max Keiser - Bernanke is a Murderer]</ref><ref>[http://dailyreckoning.com/lessons-from-egypt-for-the-american-people/ Lessons from Egypt], Charles Kadlec</ref><ref>[http://www.marketwatch.com/story/fed-dictator-bernanke-needs-to-be-toppled-2011-02-15 Fed dictator Bernanke needs to be toppled], Paul B. Farrell</ref><ref>[http://mises.org/daily/5050/QE2-Fuels-a-Global-Fury QE2 Fuels a Global Fury], Mark Thornton</ref><ref>[http://www.zerohedge.com/article/bernanke-blame-rising-global-revolutionary-wave?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+zerohedge%2Ffeed+%28zero+hedge+-+on+a+long+enough+timeline%2C+the+survival+rate+for+everyone+drops+to+zero%29 Is Bernanke To Blame?], Tyler Durden, ZeroHedge</ref> The central banker has denied that his inflationary loose-monetary policies have contributed to food inflation and Chicago Fed President Charles Evans has called for ''even more'' quantitative easing and inflation as a way out of the on-going crisis, despite previous attempts having failed to stimulate the economy.<ref>[http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/8302111/Fed-chief-Ben-Bernanke-denies-US-policy-behind-record-global-food-prices.html Ben Bernanke Denies US Policy Behind Food Price Inflation], UK Telegraph, 3 February 2011</ref><ref>[http://www.zerohedge.com/news/evans-goes-full-qetard-tells-hilsenrath-fed-needs-do-much-more-easing Chuckie Evans Goes Full QEtard]</ref> Implicit in Mr Bernanke's and Mr Evan's argument is the assumption that the central bank can create "good" inflation in some markets and avoid "bad" inflation in others. This alleged central bank power to direct good inflation and abate bad inflation is derided by a number of commentators.<ref>[http://www.youtube.com/watch?v=V3NdUU1wWa4&feature=player_embedded#at=89 Max Keiser - Bernanke is a Murderer]</ref><ref>[http://globaleconomicanalysis.blogspot.com/2011/01/blood-on-bernankes-hands-riots-in-egypt.html Blood on Bernanke's Hands], MISH</ref><ref>[http://dailyreckoning.com/lessons-from-egypt-for-the-american-people/ Lessons from Egypt], Charles Kadlec</ref><ref>[http://www.marketwatch.com/story/fed-dictator-bernanke-needs-to-be-toppled-2011-02-15 Fed dictator Bernanke needs to be toppled], Paul B. Farrell</ref><ref>[http://www.zerohedge.com/article/bernanke-blame-rising-global-revolutionary-wave?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+zerohedge%2Ffeed+%28zero+hedge+-+on+a+long+enough+timeline%2C+the+survival+rate+for+everyone+drops+to+zero%29 Is Bernanke To Blame?], Tyler Durden, ZeroHedge</ref><ref>[http://www.marketoracle.co.uk/Article28587.html QE2 Unmitigated Failure], James Quinn</ref><ref>[http://www.marketoracle.co.uk/Article28998.html The Great Misdiagnosis], Jim Willie CB</ref>

Noted British ''Telegraph'' commentator Ambrose Evans-Pritchard has called these the first Malthusian "Food Revolutions" of the modern era, as "agflation" causes political instability on the periphery of major economies worldwide - particularly those countries that have already denuded their agricultural base and have to import grain and other foods to survive.<ref>[http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/8291470/Egypt-and-Tunisia-usher-in-the-new-era-of-global-food-revolutions.html A New Era of Food Revolutions], Ambrose Evans-Pritchard</ref><ref>[http://jsmineset.com/2011/02/24/in-the-news-today-791/ Collapse]</ref>

It is also reported that very complex, delicate negotiations are taking place between debtor and creditor nations to swap government bonds with gold at prices far in excess of the declared "market price" of gold.<ref>[http://www.marketoracle.co.uk/Article25878.html China Buys European Gold], Jim Willie</ref> These so-called "off-market" deals - and possible diversions of government-owned gold to corrupt bankers and political leaders - are signs the Keynesian Endpoint has arrived and the politicians and bankers recognize they have lost control of the economic system and must focus on saving themselves.<ref>[http://lewrockwell.com/wenzel/wenzel113.html Fort Knox Gold], Robert Wenzel</ref><ref>[http://www.marketoracle.co.uk/Article25878.html China Buys European Gold], Jim Willie</ref> Max Keiser reports that it appears powerful nations will negotiate repatriation of their gold and smaller nations will either have to accept their gold is lost or face war if they attempt to repatriate their own gold home.<ref>[http://www.youtube.com/watch?v=8lnslMWhOTw&list=SPC3F29DDAA1BABFCF&index=194 Welcome Home German Gold], Max Keiser</ref> Germany and other countries have started to slowly repatriate their gold in anticipation that gold may not be available at any price in future.<ref>[http://www.lewrockwell.com/spl5/fed-short-germanys-gold.html What if the Fed is Short Germany's Gold?]</ref><ref>[http://lewrockwell.com/thomas-jeff/thomas-jeff16.1.html The Disappearing Gold]</ref>

Finally, it should be noted that, with the collapse of Tsarist Russia, the establishment of the fifth and final central bank of the United States, the destruction of the fiat-issuing fascist regimes in Italy, Germany and Japan post-WWII, and the collapse of communism in the 1990s, there no longer exists any major economy where the banking system is fully government-owned or has any strictly enforceable social responsibilities beyond pure profit motive. All major world economies have now adopted essentially the same monetary system, with profit-driven private banks (government-licensed institutions legally permitted to engage in unlimited credit creation) able to pocket profits during upswings and socialize losses during downswings by use of central bank asset swaps. If critics are correct that all such systems are doomed to severe boom-bust cycles because of excessive expansion of speculative credit and endemic [[moral hazard]], it is to be expected that all major economies will also experience essentially the same kind of environmental and food crises, and even allegedly "strong" economies such as China will experience severe economic downturns at some stage.<ref>[http://mises.org/daily/5070/Bust-Looms-As-China-Booms Bust Looms], Markus Bergstrom</ref><ref>[http://globaleconomicanalysis.blogspot.com/2011/03/bloodstained-property-map-and-trampled.html Bloodstained Property Map], MISH</ref> However, equally, if critics are correct that fractional reserve banking, excessive credit expansion and artificially low interest rates are at the root of all financial crises, then higher reserve ratios and capital requirements for domestic banks (or the existence of heavily controlled nationalized banks) should reduce the severity of economic crises in those economies with higher reserve requirements for their own banks.<ref>[http://www.bloomberg.com/news/2011-02-18/china-increases-banks-reserve-ratio-for-second-time-to-curb-property-boom.html China increases bank reserves to curb inflation], Bloomberg</ref><ref>[http://video.ft.com/ Lex's John Authers and Richard Stovin-Bradford discuss how to regulate banks better and how to handle those that are just too big to fail]</ref>

==Potential solutions==
Many consider it too late to reform the financial system.<ref>[http://www.zerohedge.com/news/2013-05-25/bill-black-our-system-so-flawed-fraud-mathematically-guaranteed Fraud is Guaranteed], Bill Black</ref><ref>[http://lewrockwell.com/stockman/stockman19.1.html A Review of The Great Deformation]</ref><ref>[http://matterhornassetmanagement.com/2013/03/18/get-your-assets-out-of-the-banks-now/ Get Your Assets Out of the Banks - NOW], Egon von Greyerz</ref><ref>[http://news.goldseek.com/LewRockwell/1306767600.php Is Greece the Future of America?], Mike Rozeff</ref><ref>[http://www.marketoracle.co.uk/Article27739.html Financial Slaughterhouse], Ashvin_Pandurangi</ref><ref>[http://www.marketoracle.co.uk/Article27764.html The Big QE2 Shakedown], Mike Whitney</ref><ref>[http://www.youtube.com/watch?v=-GmBoJ7qHYg&feature=player_embedded Simon Johnson INET]</ref><ref>[http://www.guardian.co.uk/business/2010/sep/14/banking-reforms-too-little-too-late Too Little Too Late], UK Guardian, 14 Sept 2010</ref><ref>[http://www.marketoracle.co.uk/Article27583.html Fed Reckoning Day Realities for Investor Pains and Gains], Deepcaster LLC</ref><ref>[http://maxkeiser.com/2013/02/02/kr401-keiser-report-fake-it-til-you-make-it-economy/ Fake It Till You Make It]</ref><ref>[http://www.marketoracle.co.uk/Article39037.html Fiat Currency Witches Brew], Ty Andros</ref> There is now so much debt in the system that the reduction in money supply growth necessary to curb [[malinvestment]] and financial bubbles would only result in financial crises and mass bankruptcies and, ultimately, business assets being transferred to the banking system. This is obvious when one observes that with no debt there is no money. With a slowing economy and reduction in money supply all assets subject to debt would inevitably be flushed through the banking system as a mathematical necessity.<ref>[http://www.moneyasdebt.net/ Money as Debt]</ref> Therefore virtually all assets will ultimately end up under the control or ownership the banking system if the present system is allowed to continue, as slowing money supply growth is inevitable with slowing population and economic growth. This is not true in a true free market monetary system<ref>[http://lewrockwell.com/woods/woods225.html Greenbackers Are Nuts]</ref> but is true of our current government manipulated debt-based system.<ref>[http://www.moneyasdebt.net/ Money as Debt]</ref>

When debt levels are unsustainable there are only a limited number of possible scenarios, and as each country reaches its debt limits each country will need to choose between these alternatives, as Iceland, Ireland, Cyprus, Greece and many other countries have already experienced. The debt is monetized, the debt is forgiven by the creditor, the debt is repudiated by the debtor and defaulted upon, the debt is postponed by temporary suspension of repayments, or the debtor finds unexpected or new ways to pay back the debt, which may include theft or confiscation from others.<ref>[http://www.zerohedge.com/news/2014-01-24/guest-post-how-paper-money-experiment-will-end How The Paper Money Experiment Will End]</ref>

The "Icelandic Solution" involved repudiation.<ref>[http://www.zerohedge.com/node/475643 The Secret Sauce of Iceland's Success Story: Debt Liquidation?]</ref> Private banks were allowed to fail and social security measures for the poor and indebted were increased. However this option is virtually impossible in other larger, less homogeneous countries given the power of the financial services sector over government in most other countries.<ref>[http://www.zerohedge.com/news/2013-01-26/only-3-minutes-worth-listening-davos Interview with Iceland's President Olafur Ragnar Grimson]</ref> It should be noted that all IMF member countries have a central bank at the heart of their financial system.<ref>[http://www.zerohedge.com/news/2013-09-16/25-fast-facts-about-federal-reserve Fast Facts About the Federal Reserve]</ref> The UK went so far as to trigger anti-terrorism legislation against Icelandic banks in a bid to pressure Iceland to pay out claims against its private banks.<ref>[http://reason.com/archives/2012/09/07/iceland-provides-a-blueprint-for-survivi Iceland Shows Other Europeans How to Survive Bankruptcy], ''Reason''</ref>

The simplest and cleanest solution for any debt-fuelled crisis is simply to [[default]] and not attempt to pay back the loans - particularly if the debt has been created unethically or fraudulently.<ref>[http://mises.org/daily/6369/The-Ethics-of-Repudiation The Ethics of Repudiation]</ref><ref>[http://mises.org/daily/5476/ There Is Life After Default], Peter Klein</ref><ref>[http://www.oftwominds.com/blogsept11/Zeus-debt-forgiveness-9-11.html Endgame], Zeus Yiamouyiannis, Ph.D.</ref><ref>[http://globaleconomicanalysis.blogspot.com/2011/02/massive-rout-in-irish-elections.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+MishsGlobalEconomicTrendAnalysis+%28Mish%27s+Global+Economic+Trend+Analysis%29 Default Best Option for Ireland], MISH</ref><ref>[http://mises.org/daily/5449/Defaulting-on-the-Feds-Bonds Defaulting on the Fed's Bonds], Robert Murphy</ref> If, as Paul Krugman and other Keynesians have argued<ref>[http://lewrockwell.com/anderson/anderson330.html Do We Really 'Owe It to Ourselves]</ref> "we owe it to ourselves", then there should be no problem repudiating that debt as it would merely involve an accounting adjustment.<ref>[http://bastiat.mises.org/2013/02/we-only-repudiate-it-to-ourselves/ We Only Repudiate It to Ourselves]</ref> This was the solution chosen by Iceland, even in circumstances which involved powerful international creditors. Despite enormous pressure from the UK government to try to force the Icelandic government to bail out its banks, it chose not to do so and allowed the private banks to default.<ref>[http://www.dailymail.co.uk/news/article-1080233/Icelanders-hit-Brown-freezing-banks-assets-We-terrorists-campaign.html Icelanders hit back at Brown]</ref> The Greek government also partially defaulted on its debts in 2012.<ref>[http://www.bbc.co.uk/news/business-17341381 Greek Default]</ref> David Graeber, author of ''Debt: The First 5000 Years'' has stated a global debt Jubilee is inevitable.<ref>[http://www.youtube.com/watch?v=SxZtfi2pYNo&list=SPPszygYHA9K2ZtV_1KphSugBB7iZqbFyz&index=6 Max Keiser Interview with David Graeber]</ref> However, particularly where government debt default is involved, bankers generally do everything to avoid this "inevitable" outcome because it (a) reduces the value of their asset (debt-based government bonds) (b) reduces or even destroys their income stream (interest on bonds) and therefore may affect their retained earnings in future (and their credit rating and compliance with Basel III rules on Tier 1 capital) (c) can result in a systemic crisis as many banks will be using that government debt to satisfy their liquidity requirements and reduce counterparty risk - even more so under Basel III (which requires a minimum proportion of "liquid" assets to be held by the banks - and those "assets" mainly consist of government bonds) and (d) signals to other countries that it is possible to escape debt without consequence and so potentially reduces the value of government debt in surrounding countries.<ref>[http://globaleconomicanalysis.blogspot.com/2011/05/trichet-goes-ballistic-walks-out-of.html Trichet Goes Ballistic], MISH</ref> Self-interested bankers are therefore often desperate to avoid government debt default, and generally much prefer an economy to be strangled by debt rather than be freed of it.<ref>[http://globaleconomicanalysis.blogspot.com/2011/05/trichet-goes-ballistic-walks-out-of.html Trichet Goes Ballistic], MISH</ref>

Confiscation or theft is often the desperate debtor's only option, if the creditors are so powerful the debtor cannot default. The sudden confiscation of part of "insured" bank depositors' savings in Cyprus is an extreme example of the last option and is the international bankers' and creditor governments' preferred "solution" as it means their debts get repaid, however unjustly.<ref>[http://www.reuters.com/article/2013/03/17/us-eurozone-cyprus-risk-idUSBRE92G0BG20130317 Cyprus bank levy]</ref><ref>[http://www.marketoracle.co.uk/Article39536.html Cyprus Haircut]</ref><ref>[http://www.zerohedge.com/news/2013-03-22/ecb-set-fair-cypriot-standard-living-capital-controls Capital Controls in Cyprus]</ref>

As an example of the consequences of the two alternatives, Iceland did not try to save its private bankers but instead permitted them to default on private bond payments.<ref>[http://www.zerohedge.com/news/2013-01-26/only-3-minutes-worth-listening-davos Interview with Iceland's President Olafur Ragnar Grimson]</ref> Ireland on the other hand guaranteed private bank debt and in doing so subjected the taxpayers of that country to decades of payments for debts that were not incurred on their behalf or for their benefit. Many commentators have observed that in 2010 [[Iceland]] recovered much faster than other countries such as [[Ireland]].<ref>[http://www.smh.com.au/business/iceland-bounces-back-as-pain-leads-to-gain-20101208-18pvm.html Iceland Bounces Back]</ref><ref>[http://www.vanityfair.com/business/features/2011/03/michael-lewis-ireland-201103?printable=true When Irish Eyes Are Crying], Michael Lewis</ref> In his extensive analysis of the aftermath of the banking panic in Ireland, Michael Lewis wrote of his puzzlement that the timid Irish government thought it was beyond the bounds of acceptable political discourse to consider default on privately issued Irish bank bonds, when Iceland successfully defaulted and only after this did they nationalize their banking system.<ref>[http://www.vanityfair.com/business/features/2011/03/michael-lewis-ireland-201103?printable=true When Irish Eyes Are Crying], Michael Lewis</ref> Commentators still dispute the relative costs and benefits of the policies implemented in Iceland and Ireland. The inflation rate has remained higher but unemployment rate remained substantially lower in Iceland compared to Ireland.<ref>[http://mises.org/daily/6575/Inflation-Has-Not-Cured-Icelands-Economic-Woes Inflation and Iceland]</ref><ref>[http://www.marketoracle.co.uk/Article42958.html Bank Guarantee Bankrupted Ireland]</ref>

In the absence of outright default, some governments simply delay addressing the issues of debt and default, with the central bank buying government bonds and manipulating the stockmarket and other asset and commodity markets to keep solvency in the banking system and government alive.<ref>[http://lewrockwell.com/barnett/barnett39.1.html Are the Federal Reserve and Its Primary Dealer Banks Manipulating the Stockmarket?]</ref><ref>[http://www.gold-eagle.com/editorials_12/lundeen061712.html Market Manipulation]</ref> Time may allow re-inflation of the markets through the gradual injection of new [[debt money]] into the system through new borrowings. It is a rare "[[black swan]]" event for a cluster of private businesses or banks to default at the same time and governments often hope that this will not happen again once it has happened already. However, if the crisis is one of national solvency, waiting passively for recovery may only delay - and exacerbate - the final catastrophe as the debt-based monetary system pushes all businesses slowly towards the next crisis by confusing and misleading market participants with false price signals, particularly as they relate to interest rates. Once the next crisis hits because of even more confused price signals due to government interference in the market for money, time is something panicked financiers and investors are least likely to want to give up when the threat is never getting their [[money]] out of the imploding investment [[bubble]]. In extreme cases [[bank]]s could set up "independent" corporate investment vehicles to buy the assets associated with the [[bad debt]],<ref>[http://www.dealbreaker.com/2007/10/citigroup_looks_to_lend_money.php Citigroup looks to lend money]</ref> thereby allowing [[borrower]]s to liquidate their investments and allow time for the markets to re-inflate. Alternatively, these "sour" loans, that have gone bad through too much debt overwhelming the markets, could be dumped or "hidden" on the central bank's balance sheet, and swapped for more secure government debt (financed through compulsorily acquired taxes, which are immune from the risk of private bankruptcy). However the holding costs involved in these measures would be extremely high and would not guarantee that the losses could be averted if no new gullible investors could be found to offload these distressed assets.<ref>[http://www.youtube.com/watch?v=n8w6Nx2rfiE A Wikileaks for the Fed?]</ref> More fundamentally, these short-term "parachutes" used after bubbles burst do not save ordinary borrowers from [[foreclosure]] and [[bankruptcy]], nor do they address the pernicious long-term dysfunctional aspects of [[fractional reserve banking]] described above. These problems are temporarily averted, only to be dealt with yet again by the next generation of indebted governments and peoples.<ref>[http://www.informationclearinghouse.info/article18431.htm The Era of Global Financial Instability, by Mike Whitney]</ref><ref>[http://www.youtube.com/watch?v=n8w6Nx2rfiE A Wikileaks for the Fed?]</ref> Simply deferring the crisis and repeatedly bailing out the banks may simply entrench misallocation of resources within the financial and governmental sectors, starving private businesses of the savings needed to invest and produce.<ref>[http://www.zerohedge.com/news/2013-01-26/only-3-minutes-worth-listening-davos Interview with Iceland's President Olafur Ragnar Grimson]</ref>

The preferred long-term free market solution (outright default and a return to free market money and the abolition of legal tender and central banks) is extremely unlikely.<ref>[http://seekingalpha.com/article/273466-4-reasons-the-u-s-will-never-return-to-a-gold-or-silver-standard 4 Reasons the US Will Never Return to a Gold or Silver Standard]</ref> In addition, given that bankers and central banks "stole" most of the people's gold, with mass confiscations dating back to the 1930s in the US<ref>[http://www.gold-eagle.com/editorials_08/nielson031411.html The Great Gold Bait-And-Switch] Jeff Nielson</ref> and earlier in Europe,<ref>[http://www.lewrockwell.com/north/north107.html Buyers of Gold], Gary North</ref> an immediate and uncompensated<ref>[http://theeconomiccollapseblog.com/archives/10-things-that-would-be-different-if-the-federal-reserve-had-never-been-created 10 Things That Would Be Different]. Note: "uncompensated" in this context means "without allowing widespread debt default with minimal punishment" or "without the issuance of debt-free money to the general populace prior to a return to the gold standard"</ref> return to the gold standard now would simply further enrich bankers and impoverish workers through crushing deflation, as the value of the assets the middle class had previously saved in (housing and mutual funds) collapsed and gold (the "elite banker's money") suddenly soared in value,<ref>[http://www.zerohedge.com/news/2013-02-26/central-banks-cannot-create-wealth-only-liquidity Central Banks Cannot Create Wealth]</ref> allowing bankers yet another generation of largesse from past theft. It should be noted that one of the principal financial assets of both the IMF and the US central bank is confiscated gold (the other being government bonds).<ref>[http://www.xat.org/xat/worldbank.html The History of Money]</ref> Less than 1% of all pension fund assets held by the general public are currently allocated to physical precious metals and many mutual funds have mandates effectively prohibiting them from holding physical precious metals.<ref>[http://sgtreport.com/2011/07/gold-silver-and-pension-funds-portfolio-diversification-myths/ Gold, Silver and Pension Funds]</ref> If the gold price were to soar, the very institutions most responsible for financial disorder would be those most likely to benefit from the chaos, having already positioned themselves to benefit from any price explosion in gold.

Given that both the Icelandic and radical free market solutions are effectively impossible to implement to any significant extent, some analysts of the current debt-based monetary system consider that, after decades of excess debt and fiat money, the current capital structure is so distorted and malinvested, the food supply so industrialized and vulnerable to shocks, and the environment generally so polluted from government-protected mining and mass industrialization that there is no hope for the vast majority of the middle class and indeed the mass of humanity in the coming decades as a combination of periodic confiscation and selective debt monetization destroys any stability in the world economy.<ref name="death"/>

Getting back to a market-based banking system would require, at minimum: (1) abolition of all deposit insurance; (2) eliminating the doctrine of "Too Big to Fail" by prohibiting the central bank from buying any assets from insolvent banks; and (3) allowing the market to set interest rates by removing this price fixing power from the central bank and allowing the real inter-bank market to set interest rates.<ref>[http://bastiat.mises.org/2012/06/misesians-in-mordor-the-video/ Misesians in Mordor]</ref> However, such changes to the global monetary system would likely trigger immediate bank runs on the weakest banking institutions and (most likely) a systemic crisis, resulting in a sudden deep depression in the short term and a period of minimal or no capital investment in the medium term as access to lending dried up from suddenly illiquid financial institutions. Although in the minds of many Austrians, the resulting system would be greatly preferable to the current dysfunctional and unsustainable system, the transition period would likely be so traumatic that no democratic government (or no government at all) would likely countenance such deregulation, nor would they likely be allowed to by the banks themselves.

Government and banking have become so intertwined there is virtually no difference between them, as banks bail out governments who in turn bail out banks in Ponzi scheme fashion.<ref>[http://www.guardian.co.uk/commentisfree/2012/mar/22/greece-european-banks-eurozone European banks saving Greece or themselves?]</ref>

Coercive, rule-bound government, by its very nature, can only perpetuate itself if it constantly maintains a monopoly of force and is widely respected as the final arbiter of disputes between any two parties within its jurisdiction.<ref>[http://www.dailypaul.com/140907/hans-hoppe-on-why-he-thinks-limited-government-is-impossible Hans Hermann Hoppe on why limited government is impossible]</ref> Governments do not obtain their revenue through donations or voluntary payments but rather either tax the populace or print fiat money to spend on projects the government deems worthwhile. There is therefore an inherently dangerous power in government spending. Good government exists to provide public goods, regulate externalities and protect and enforce property rights.<ref>[http://blog.mises.org/6546/james-wilson-on-the-purpose-of-government-and-the-constitution/ James Wilson on the purpose of government], James Galles</ref> However, if government force is used not for public purposes but to protect and enhance the power of a tiny political and financial elite, parasitic thieving forces can take over monopoly government and destruction of the economy can occur without the ability of the people to revolt or defend themselves against the depredations of government force.<ref>[http://www.lewrockwell.com/orig11/wile13.1.html One World Government], Hans Hermann Hoppe</ref><ref>[http://www.youtube.com/watch?v=DNcDu0z9UfQ Matt Tiabbi Interview on UBS Scandal]</ref> Destructive policies can therefore continue for longer than the survival of the economy itself, especially if people have been lulled into complacency by a long history of relatively benign government whilst parasitic forces slowly take over power from behind the scenes.<ref>[http://www.lewrockwell.com/orig11/wile13.1.html One World Government], Hans Hermann Hoppe</ref> Some consider that modern democracy has been subverted and that the two-party choices being presented today are a charade, with little real difference between duopoly political parties, which are just shams to cover the slow but inexorable takeover of the levers of power by the financial "elite", who do not respect nor care about the will of the people, who they consider too stupid or powerless to be treated seriously.<ref>[http://www.youtube.com/watch?v=DNcDu0z9UfQ Matt Tiabbi Interview on UBS Scandal]</ref><ref>[http://globaleconomicanalysis.blogspot.com/2011/06/vote-for-whoever-you-want-bailout.html Vote for Whoever You Want], MISH</ref><ref>[http://lewrockwell.com/wile/wile36.1.html Stop Clinging to False Hope], Anthony Wile</ref><ref>[http://www.marketoracle.co.uk/Article28949.html United States of Denial], James West</ref> Since the mid-1990s and even earlier it has been argued by many commentators that the gold default of August 15, 1971 would inevitably lead to economic disaster due to the distorting and parasitic effects unlimited fiat money and credit creation would have on the productive private economy.<ref>[http://dailyreckoning.com/armageddon-can-wait/ Armageddon Can Wait], Bill Bonner</ref><ref>[http://www.nytimes.com/2011/08/01/business/deal-may-avert-default-but-some-ask-is-that-good.html?pagewanted=1&_r=1&hpw Deal May Avert Default, but Some Ask 'Is That Good?']</ref><ref name="Landis_Reprieve" /> The relentless exponential growth in retirement and welfare benefits will now be enough to bankrupt many Western governments (including the United States).<ref name="Landis_Reprieve" /><ref>[http://www.amazon.com/Boomergeddon-Deficits-Government-Devastate-Retirement/dp/1892538539/ref=sr_1_1?ie=UTF8&qid=1305008253&sr=8-1 Boomergeddon], James A. Bacon Jr</ref> No one in power today appears willing to tackle either the corrupt banking industry or government largesse.<ref>[http://www.youtube.com/watch?v=DNcDu0z9UfQ Matt Tiabbi Interview on UBS Scandal]</ref><ref>[http://globaleconomicanalysis.blogspot.com/2011/06/vote-for-whoever-you-want-bailout.html Vote for Whoever You Want], MISH</ref><ref>[http://www.prudentbear.com/index.php/thebearslairview?art_id=10538 Sayonara, Washington], Martin Hutchinson</ref> Too many in power have a vested interest in the continuation of the system of spiraling inflation and debt to stop it, even if it could be stopped.<ref>[http://www.youtube.com/watch?v=DNcDu0z9UfQ Matt Tiabbi Interview on UBS Scandal]</ref><ref>[http://www.zerohedge.com/article/guest-post-global-economy-burns-while-its-leaders-fiddle Global Economy Burns, While Its Leaders Fiddle], Nomi Prins, ZeroHedge</ref> Whilst the general economy suffers, old infrastructure collapses, man-made environmental crises abound, retailers go bankrupt, millions are foreclosed upon and are left homeless (whilst at the same time hundreds of thousands of houses lie empty and decaying) and real average incomes are decimated, perversely, banking bonuses and lobbyists' incomes have skyrocketed and the powers of the Fed and other central banks have increased because of increased regulatory duties despite their previous failures.<ref>[http://www.guardian.co.uk/politics/2011/jan/10/banks-unlimited-bonuses-ministers Banks given go-ahead to pay unlimited bonuses], Guardian UK</ref><ref>[http://www.creditcrunch.co.uk/forum/topic/9253-banking-cheats-will-always-prosper/ Bank Cheats Will Always Prosper], CreditCrunch.co.uk</ref><ref>[http://dailyreckoning.com/the-expanding-industry-of-us-government/ The Expanding Industry of US Government], Bill Bonner</ref> Despite this obvious incompetence and despite repeated failures of policy at the highest levels, anyone advocating solutions beyond those approved within failed mainstream two-party thought is commonly labelled "insane", "crazy" or an "extremist".<ref>[http://www.salon.com/news/opinion/glenn_greenwald/2010/05/28/crazy Who are the real "crazies"?], Glenn Greenwald, Salon.com</ref><ref>[http://lewrockwell.com/orig11/mullen-t4.1.1.html Extremism is the New Race Card], Tom Mullens</ref><ref>[http://www.telegraph.co.uk/finance/financialcrisis/8669352/Global-slump-warnings-if-US-triggers-insane-default.html Global slump warning if US triggers 'insane' default], Ambrose Evans-Pritchard</ref> Noted gold investor, Jim Sinclair, has publicly stated that the chaos has one cause - bankers have bought governments around the world and today's bankers are little more than irredeemably shallow "sociopaths", unable to grow a conscience and unable to foresee or care about the broader societal consequences of their actions beyond their own incestuous social groupings.<ref>[http://jsmineset.com/2009/08/31/china-invokes-a-stop-loss-on-otc-derivatives/ OTC Derivatives], Jim Sinclair</ref><ref>[http://maxkeiser.com/2011/07/17/alex-jones-on-satanic-rituals-of-bohemian-grove/ Alex Jones on Bohemian Grove], RTTV</ref> Leading British specialists in the pathology of the psychopath, Professors Robert Hare and Paul Babiak suspect the banking industry does indeed attract psychopaths and probably has a much higher proportion of mentally unstable psychopaths as executives compared to other industry sectors, although their comprehensive test (determining the degree of psychopathology in the workplace) has yet to be applied to the banking sector or to senior government officials or politicians.<ref>[http://www.ft.com/intl/cms/s/0/41fe2882-9cbe-11e0-bf57-00144feabdc0.html#axzz1QH9AQOwG Alfred Hitchcock' 'The Bankers'], James Makintosh, FT.com</ref> Michael Price, co-director of the Centre for Culture and Evolutionary Psychology at Brunel University in London agrees that the characteristics that make for good traders and investment bankers are very similar to those that define psychopaths. Former UK drug tsar David Nutt has stated that the banking crisis was caused by too many bankers taking cocaine.<ref>[http://www.telegraph.co.uk/finance/financialcrisis/9993266/Financial-crisis-caused-by-too-many-bankers-taking-cocaine-says-former-drugs-tsar.html Financial crisis caused by too many bankers taking cocaine], ''Telegraph''</ref> Therefore, given their likely sociopathic mind-set and hedonistic cocaine drug culture, provided they themselves are acquiring a greater share of gross national income, many bankers simply do not care about the consequences and will continue to label others as "crazy" or "insane" or "terrorists" for so long as it gives them cover to engage in their own [[embezzlement|criminal]] conduct and for so long as it permits the in-bred corruption to continue at the highest levels.<ref>[http://www.mises.org/daily/6314/Why-Bankers-Avoid-the-Public-Eye Banking and the State]</ref><ref>[http://blogs.telegraph.co.uk/news/nilegardiner/100099341/joe-biden-compares-the-tea-party-to-terrorists-is-this-the-most-crass-and-nasty-white-house-in-modern-us-history/ Joe Biden compares the Tea Party to terrorists], Nile Gardiner, UK Telegraph</ref> If the charade collapses and the elite are threatened, they will simply kill anyone who threatens them, as they have proven to do repeatedly in the past.<ref>[http://www.lewrockwell.com/lewrockwell-show/2011/02/15/187-confessions-of-an-economic-hit-man/ Confessions of an Economic Hit-Man], John Perkins</ref>

It should be noted that average bankers still earn around US$370,000<ref>[http://www.guardian.co.uk/business/2011/jan/14/jp-morgan-bankers-share-10bn Anger as JP Morgan bankers get $10bn pay and bonus pot]</ref> (or around £236,000 in the UK)<ref>[http://www.guardian.co.uk/business/2011/feb/15/barclays-capital-average-pay-236000-pounds Barclays investment bankers see average pay rise to £236,000]</ref> and this has steadily increased even in the aftermath of the financial crisis. Those who head up the "Too Big To Fail" banks earn around US$18 million per year, with some executives doubling their own pay in 2010.<ref>[http://www.guardian.co.uk/business/2011/apr/02/lloyd-blankfein-executive-pay-bonuses Goldman Sachs CEO's pay nearly doubles despite slump in profits]</ref> Lawyers who service and support the international banking and business community are reported to be earning up to US$2 million a year even in small peripheral countries such as Australia.<ref>[http://www.afr.com/p/national/legal_affairs/talent_war_pushes_star_lawyers_pay_ZDlK7zEXWaISbNy1QCtIUO Anger as JP Morgan bankers get $10bn pay and bonus pot]</ref>

Given many of these people are not actually producing services people would voluntarily pay for in a genuine free market economy, many of these service providers associated with the issuance and distribution of monopoly currency would be made redundant or be rendered unemployable almost immediately upon a return to a true free market gold standard. It is to be expected that these people would be violently opposed to any change in the ''status quo'' given the dramatic change in lifestyle that this would necessitate. In particular, it is to be expected that these people would specifically oppose the abolition of legal tender laws and fight against any formal declaration by any government that fractional reserve banking is a form of [[embezzlement]] or counterfeiting, or that the current financial system is a [[Ponzi scheme]] (which are generally illegal in most Western countries if they are not government-supported).

Jim Sinclair suggests that many senior participants in the international banking and derivatives industry should be jailed<ref>[http://jsmineset.com/2010/10/31/jims-mailbox-573/ Debt Burden Being Transferred], Jim Sinclair</ref> to protect the public from repeatedly being "raped"<ref>[http://jsmineset.com/2010/11/21/in-the-news-today-713/ EU Ministers Said To Plan Meeting Over Ireland], Jim Sinclair</ref> by their scams and has the following conclusion on his website:<ref>[http://jsmineset.com/2010/11/09/in-the-news-today-701/ There is no practical solution], Jim Sinclair</ref>

{{quote|For years I have been telling you that there is NO PRACTICAL SOLUTION to the total of all the mistakes that have been made since Roosevelt, in a depression, started it all.}}

Jim Sinclair considers it too late to save the system<ref>[http://www.youtube.com/watch?v=IF24atvNkSo&feature=player_embedded Jim Sinclair Interviewed by James Turk] Quote: "Who needs enemies when we have the financial leadership we have?"</ref> and recommends people become self-sufficient and buy gold to await the inevitable collapse of the political and economic system and the associated breakdown in the division of labor.<ref>[http://jsmineset.com/2011/04/07/the-system-has-failed/ The System Has Failed], Jim Sinclair</ref>

Max Keiser has stated that the culture of actual ''physical'' sexual coercion and harrassment allegedly exhibited in the financial services industry is simply symptomatic and an outgrowth of a culture of ''financial'' rape and exploitation.<ref>[http://www.youtube.com/watch?v=skwj6e9xvH8&feature=player_embedded#at=102 Savers vs Speculators] Quote: Max Keiser: "Munich Re, a financial terrorist responsible for creating ghettos. Financially disadvantaged folks who are on the short end of the 'ghettoization' of the financial terrorist schemes...are forced to wear ''yellow armbands'' and be ''sex slaves'' for their German hosts." Stacy Herbert: "Yes. And be stamped on their arms afterward to prove that they were used." Max Keiser: "Yes. Let's not forget the little serial code-stamp on the wrist as part of the package." Stacy Herbert: "But Max, the story here is that this goes from the very bottom. These are just agents going door-to-door selling insurance products in the financial services industry. The top of the pyramid of the banking Establishment is Dominique Strauss-Kahn." Max Keiser: "This is a culture. Dominique Stauss-Kahn is part of the banking ''culture''. There's Dominique Strauss-Kahn, Lloyd Blankfein, Jamie Dimon, this guy Pandit over at Citigroup, the CEO just paid himself $42 million for stealing $420 million - they have a culture of predator behavior where once you - like a serial killer - once you steal money from people with mortgage fraud or with banking fees that are illegitimate or with collateralized debt obligations you get a taste for serial financial killing. You graduate to these higher crimes and you become a Dominique Strauss-Kahn or a Lloyd Blankfein or a Jamie Dimon where serial financial murder is part of your day-to-day life. That's the culture you live in."</ref> In order to be part of the system, you must be blind to its consequences. Therefore, no one with a conscience can become powerful enough within the system to fundamentally change trajectory from its current catastrophic path.<ref>[http://www.youtube.com/watch?v=WqyCjR9JEMA&feature=player_embedded Nothing Stops Banks], Matt Taibbi</ref>

Ironically, many victims of rape and abuse come to blame themselves and never fight back, preferring to adapt to a life of abuse or enslavement. This is called "learned helplessness" in psychological terms. Doug French finds a direct analogy between the dynamics of ''physical'' rape and ''financial'' abuse, with many indebted individuals ''blaming themselves'' for their predicament and refusing to default on their debts, even though it would be in their clear financial interest to do so.<ref>[http://mises.org/daily/5409/BatteredHomeowner-Syndrome Battered Homeowner Syndrome], Doug French. Quote: 'Lenore Walker is the pioneer in the field of battered-spouse syndrome, with her book The Battered Woman. She believes that experiencing the repeated cycles of violence can result in a spouse developing "learned helplessness," a psychological state identified by psychologist Martin Seligman. The abused believe they lack control over their situation and are convinced escape is impossible. Their motivation to escape diminishes as they become increasingly passive.

Walker explains that the constant cycles of violence and reconciliation result in the following beliefs:

The abused

believes that the violence was his or her fault,
has an inability to place the responsibility for violence elsewhere,
fears for his/her life and/or the lives of his/her children, and
has an irrational belief that the abuser is omnipresent and omniscient.

These beliefs are strikingly similar to what underwater homeowners feel.

The abused believes that the violence was his or her fault. "It was my own fault for buying a house at the top of the market in the first place and borrowing too much money to do it." "I made my bed, now I must sleep in it, no matter how much financial pain it causes me."

The abused has an inability to place the responsibility for violence elsewhere. "It's nobody's fault but my own," say people with 20/20 hindsight. "Nobody made me sign the mortgage. I'm so stupid. The bank doesn't have to negotiate with me."

The abused fears for his/her life and/or the lives of his/her children. "My credit will be ruined. I won't be able to rent an apartment. My low credit score may keep me from getting a job. I don't want to uproot the kids and have to admit that daddy and mommy made a financial mistake."

The abused has an irrational belief that the abuser is omnipresent and omniscient. The abuser in this case is the lender or owner of the mortgage. The borrower fears that these lenders can take everything they have, leave them with nothing, and make their lives miserable forever.

At the same time, default moralizers reinforce these feelings. They have no sympathy for those making a poor housing and mortgage choice. A person must suffer the consequences of their actions, it's claimed.'</ref>

John Perkins, author of ''Economic Hitman'', has openly stated that the U.S. government is merely a front runner for major corporate interests and has brutally assassinated leaders of countries where reform has been attempted.<ref>[http://www.youtube.com/watch?v=xmU9R-BaFIQ Max Keiser Interview with John Perkins]</ref> The zealotry and extremism against genuine and honest monetary reformers on the one hand and the payoffs and largesse given to unprincipled and corrupt supporters of the current monetary regime on the other ensure there is no path of reform left for those potential leaders with a conscience.<ref>[http://www.zerohedge.com/article/more-political-capture-goldman-hires-top-republican-fed-transparency-foe-spends-more-time-se More Political Capture], ZeroHedge</ref>

Dimitry Orlov, author of ''Reinventing Collapse'', has written extensively about the striking similarities between the collapse of the USSR and the multiple environmental, economic and social crises facing the USA. He also predicts economic, political and social collapse in much of the West and in particular predicts that peak oil will result in some countries being cut off completely from oil supplies resulting in sudden social upheaval and starvation and believes that it is too late for any kind of meaningful reform:<ref>[http://www.youtube.com/watch?v=KLdwzcA9ZdM&feature=player_embedded#at=997 Dimitry Orlov Interview with Max Keiser - ''Reinventing Collapse'']</ref>

{{quote|(US military adverturism overseas) is just a very striking example of being unable to stop, even though what you're doing isn't actually working...

By demolishing as much of the social infrastructure as exists in the country... you will end up with an even less literate population that will be unable to oppose the government, unable to stand up for themselves and demand that their rights and needs be met...

People who think they can somehow skirt the financial system are wrong. They will be dominated by the Bernankes of this world and others. There isn't really a way out except to make do without money. And that's kind of what I try to explain to people is: Reduce your needs for any kind of interaction with the official economy and you will do better.}}

Given these repeated financial crises arising from the fiat monetary system, many [[monetary reform]]ers predict that there will inevitably be widespread default or hyperinflation or depression - or most likely all three simultaneously in what Ludwig von Mises predicted would be a "final and total catastrophe" of our unsustainable, Ponzi-like, fiat monetary system.<ref>[http://mises.org/daily/5041/Whats-Behind-the-Currency-War What's Behind the Currency War], Anthony Mueller</ref> After this "catastrophe"<ref name="Landis_Reprieve">[http://www.goldensextant.com/SavingtheSystem.html Fiat's Reprieve: Saving the System, 1979-1987], Robert K. Landis, August 21, 2004.</ref> in which a significant proportion of the population may die through starvation or war<ref>[http://lewrockwell.com/bonner/bonner602.html We're all going to die]</ref><ref>[http://www.zerohedge.com/article/20-signs-horrific-global-food-crisis-coming?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+zerohedge%2Ffeed+%28zero+hedge+-+on+a+long+enough+timeline%2C+the+survival+rate+for+everyone+drops+to+zero%29 20 Signs], ZeroHedge</ref><ref>[http://www.lewrockwell.com/adams-m/adams-m15.1.html US Agriculture Collapse]</ref><ref>[http://www.marketoracle.co.uk/Article26605.html Population Reduction], Chris Kitze</ref><ref>[http://www.rickackerman.com/2011/03/getting-the-jump-on-a-possible-food-shortage/ Getting the Jump on Food Shortages], Marilyn Ackerman</ref><ref>[http://www.goldismoney2.com/archive/index.php/t-524.html?s=d418ff253326772a09e1a8d992da7753 Venetian Bankers and the Dark Ages]</ref><ref>[http://mises.org/daily/6142/The-Apocalyptic-Vision-of-The-Road The Road], Ben O'Neill</ref> a spontaneous market-induced return to the [[gold standard]] is anticipated to be the most likely result.<ref>[http://www.youtube.com/watch?v=VMngK0t5WkY Mike Maloney interview with Max Keiser], The Keiser Report</ref><ref name="Landis_Reprieve" /><ref>[http://globaleconomicanalysis.blogspot.com/2011/02/us-dollar-about-to-lose-reserve.html US Dollar About to Lose Reserve Currency Status: Fact or Fiction?], MISH</ref><ref>[http://www.marketoracle.co.uk/Article40253.html The Great Gold Redemption], Peter Schiff</ref> Other possible solutions following the catastrophe include a return to legally enforced full reserve banking combined with the issuance government-issued debt-free [[fiat currency]], or [[free banking]] and the issuance of private coinage and private money. If these solutions are not initiated soon, it can be expected that a complete financial "meltdown" will ensue at some stage, as environmental crises and destruction of arable land slow GDP growth in developing nations and fewer young people in developed economies can be found who are willing to go into debt in sufficient magnitude to pay off the debts that have already been accumulated.<ref name="Bonner_Swan" /><ref name="Landis_Reprieve" /> As extreme inequality increases, [[foreclosure]]s mount and financial crises repeatedly erupt, many believe a political crisis will eventually result in calls for revolution and fundamental [[monetary reform]].<ref>[http://www.youtube.com/watch?v=uV_gwvSibmM&feature=player_embedded#at=510 Max Keiser on Alex Jones]</ref><ref>[http://www.youtube.com/watch?v=VMngK0t5WkY Mike Maloney interview with Max Keiser], The Keiser Report</ref><ref name="Landis_Reprieve" /> However, as noted above, some commentators consider that it is already too late to avoid a combined financial, environmental and demographic catastrophe even if reform is now attempted.<ref>[http://globaleconomicanalysis.blogspot.com/2011/03/oil-prices-are-double-edged-sword-peak.html Peak Everything?], MISH</ref><ref>[http://www.population-security.org/28-APP2.html NSSM 200 Directive], Henry A. Kissinger, April 24, 1974</ref><ref>[http://www.youtube.com/watch?v=0KInB2rvgaY&feature=fvsr Eco Eco Disaster], Keiser Report</ref>

Even if worldwide economic catastrophe cannot be averted at this stage of the metastasizing financial crisis, choices will still need to be made by each government in response to the crisis. On-going, worsening, [[debt]]-created crises in the economy and society (and the unsustainable damage to the [[environment]] caused by debt-created [[overconsumption]]) are likely to turn monetary and economic policies either to the extreme left or to the extreme right, as there are a number of competing solutions to the debt-based monetary "problem".<ref>[http://www.youtube.com/watch?v=jqjyk2cx5WU&feature=player_embedded#at=696 Taste of Freedom E126], Max Keiser, Keiser Report</ref> It should be noted that some commentators consider that Western governments have in recent years chosen a combination of the "worst" of all possible options: bailing out banks and increasing government spending and indebtedness whilst periodically trying to enforce austerity against the middle class and the ordinary working class.<ref>[http://www.zerohedge.com/news/2013-01-26/daniel-hannan-destroys-3-unquestionable-myths-our-crisis Daniel Hannan Oxford Speech]</ref> Some have called Western government policy reactions to the financial crisis as a decisive move towards "Crony Capitalism" that is neither "free market" nor "socialist" but rather the last desperate acts of a corrupt banker-government cabal of "counterfeiters".<ref>[http://www.zerohedge.com/news/2013-02-06/guest-post-all-well All Is Well], Jim Quinn</ref><ref>[http://www.mises.org/daily/6314/Why-Bankers-Avoid-the-Public-Eye Banking and the State]</ref><ref>[http://www.marketoracle.co.uk/Article37021.html Why We Are Bailing Out the Banks], Jesse</ref><ref>[http://www.economist.com/news/books-and-arts/21565142-how-america-bailed-out-banks-rather-its-citizens-crisis-mismanagement How America bailed out the banks rather than its citizens] ''The Economist''</ref><ref>[http://www.lewrockwell.com/rothbard/frb.html Fractional Reserve Banking], Murray Rothbard</ref> If this is correct, the destruction of economic capital in those countries adopting the Crony Capitalist model in response to the financial crisis will likely result in the descent into quasi-Third World status.<ref>[http://seekingalpha.com/article/309501-how-the-u-s-is-quickly-becoming-a-third-world-country-part-1 How the US is quickly becoming a Third World Country], Seeking Alpha</ref><ref>[http://www.lewrockwell.com/spl2/us-becoming-third-world.html 10 Signs the US is becoming a Third World Country]</ref><ref>[http://www.youtube.com/watch?v=qDKvSMZNgjc Peter Schiff Rips Paul Krugman on Economy]</ref><ref>[http://www.zerohedge.com/news/2013-07-24/guest-post-bankers-own-world Bankers Own the World]</ref>

===Libertarians, Austrians and commodity money===

[[Libertarians]] and [[Austrian School]] supporters envision a voluntary society of free markets (where banks - however large - are allowed to fail if they cannot perform their obligations),<ref>[http://www.zerohedge.com/news/2013-01-26/daniel-hannan-destroys-3-unquestionable-myths-our-crisis Daniel Hannan Oxford speech]</ref> small government<ref>[http://www.prudentbear.com/index.php/thebearslairview?art_id=10473 Models of Capitalism], Michael Hutchinson</ref> and the abolition of monopolistic legal tender laws,<ref>[http://mises.org/daily/5562/The-Real-Solution-to-the-Debt-Problem The Real Solution to the Debt Problem], David D'Amato</ref><ref>[http://lewrockwell.com/paul/paul766.html Legalize Currency Competition], Ron Paul</ref> allowing money backed by a ''free market''<ref>[http://www.lewrockwell.com/blog/lewrw/archives/94712.html Subcommittee Explores Sound Money]</ref><ref>[http://mises.org/daily/5562/The-Real-Solution-to-the-Debt-Problem The Real Solution to the Debt Problem], David D'Amato</ref> [[gold standard]] or [[silver standard]] to come back in circulation (or some other free market money system such as Bitcoin).<ref>[http://www.salon.com/2013/03/22/a_libertarian_nightmare_bitcoin_meets_big_government/ Bitcoin]</ref><ref>[http://lewrockwell.com/north/north1009.html Counterfeit Gold Standards], Gary North</ref><ref>[http://lewrockwell.com/orig11/krolman5.1.1.html Accidentally Conceived in 1971], Arthur M.M. Krolman</ref><ref>[http://www.marketoracle.co.uk/Article27532.html Why Monetary Expansion Must Stop], Patrick Barron</ref><ref>[http://www.marketoracle.co.uk/Article26339.html Silver and Opium], Antal E. Fekete</ref><ref>[http://www.marketoracle.co.uk/Article25212.html The Faults of FRB], Thorsten Polleit</ref> It should be noted that even a partial return to the gold standard (allowing foreign central banks to redeem US government bonds in US gold) would result in the gold price having to rise to approximately $20,000 per ounce.<ref>[http://www.zerohedge.com/news/2013-02-26/central-banks-cannot-create-wealth-only-liquidity Central Banks Cannot Create Wealth]</ref><ref>[http://www.youtube.com/watch?v=2rJspP6q3g8 Mike Maloney Interview with Max Keiser]</ref>

It must be emphasized that a ''necessary'' pre-condition in establishing a true free-market order would be the complete abolition of all legal tender laws<ref>[http://www.nysun.com/opinion/ron-paul-upping-the-ante-in-his-campaign/87502/ Ron Paul Upping the Ante]</ref> and the abolition of monopolistic central banking, including repeal of the [[Federal Reserve Act]] of 1913.<ref>[http://mises.org/daily/5562/The-Real-Solution-to-the-Debt-Problem The Real Solution to the Debt Problem], David D'Amato</ref><ref>[http://www.drschoon.com/articles%5CSilverGoldAndTheLastAmericanHeroJFK.pdf Silver, Gold and the Last American Hero JFK], Darryl Robert Schoon. Extracted quote from Ron Paul: "The United States Constitution grants to Congress the authority to coin money and regulate the value of the currency. The Constitution does not give Congress the authority to delegate control over monetary policy to a central bank. Furthermore, the Constitution certainly does not empower the federal government to erode the American standard of living via an inflationary monetary policy." Note: Another argument – that the power to "coin" money precludes issuance of paper money, and that the government must redeem paper money with "precious metal" – was dismissed as frivolous in ''Milam v. United States'', citing the Legal Tender Cases.</ref><ref>[http://www.lewrockwell.com/blog/lewrw/archives/73833.html End the Fed], Freedom Watch</ref><ref>[http://mises.org/daily/4860 Money: Sound and Unsound], Mark Thornton commentary on Joseph Salerno's book</ref><ref>[http://www.prudentbear.com/index.php/thebearslairview?art_id=10471 Gold Standard Renaissance?]</ref><ref>[http://www.marketoracle.co.uk/Article24632.html The Gold Standard Never Dies], [[Lew Rockwell]]</ref><ref>[http://www.prudentbear.com/index.php/thebearslairview?art_id=10471 Gold Standard], Michael Hutchinson</ref><ref>[http://mises.org/store/Money-Bank-Credit-and-Economic-Cycles-P290C0.aspx Money, Bank Credit and Economic Cycles], Jesus Huerta de Soto, Mises Institute ISBN: 978-1-933550-39-8</ref><ref>[http://radio.goldseek.com/griffin04.10.10.php Goldseek interview] with [[G. Edward Griffin]]</ref><ref>See also these [[Murray Rothbard]] articles: [http://www.mises.org/money.asp What Has Government Done to Our Money?], [http://www.mises.org/story/1829 The Case for the 100% Gold Dollar]; [http://www.lewrockwell.com/rothbard/cartelization.pdf The Fed as Cartel], [http://www.lewrockwell.com/rothbard/rothbard191.html Private Coinage], [http://www.lewrockwell.com/rothbard/rothbard190.html Repudiate the National Debt]; [http://www.lewrockwell.com/rothbard/rothbard181.html Taking Money Back], [http://www.lewrockwell.com/rothbard/rothbard163.html Anatomy of the Bank Run], [http://www.lewrockwell.com/rothbard/rothbard128.html Money and the Individual]</ref> "Capitalism" or "the free market" cannot be blamed or held responsible for current dire economic conditions given this coercive government prohibition against competition in currency creation.<ref>[http://mises.org/daily/5562/The-Real-Solution-to-the-Debt-Problem The Real Solution to the Debt Problem], David D'Amato</ref> Some Keynesians dismiss this desire to return to the gold standard by pointing out that financial crises occurred prior to the creation of the Fed.<ref>[http://www.pbs.org/newshour/businessdesk/2013/06/paul-krugman-on-why-david-stoc.html Paul Krugman Interview]</ref><ref>[http://www.frbsf.org/economic-research/publications/economic-letter/2013/may/crises-before-after-creation-fed/ Crises Before and After the Fed]</ref> Austrians counter by stating that such crises, although possibly less frequent, have been more severe and long-lasting ''after'' the creation of the Fed.<ref>[http://mises.org/daily/3466 ABCT]</ref> In addition even those "panics" which occurred prior to the creation of the Fed had monetary causes relating to fractional bank regulation and speculation.<ref>[http://mises.org/document/695/ Panic of 1819}</ref> Some Libertarians would also support experimentation with [[full reserve banking]],<ref>[http://mises.org/daily/4860 Money: Sound and Unsound], Mark Thornton commentary on Joseph Salerno's book</ref><ref>[http://mises.org/store/Money-Bank-Credit-and-Economic-Cycles-P290C0.aspx Money, Bank Credit and Economic Cycles], Jesus Huerta de Soto, Mises Institute ISBN: 978-1-933550-39-8</ref><ref>[http://www.mises.org/Books/mysteryofbanking.pdf Murray Rothbard, ''The Mystery of Banking'']</ref> recognizing that when fractional-reserve banking is combined with the gold standard a strong cyclical bias (and the systematic transfer of real wealth to the banking system) is normally inevitable.<ref>[http://mises.org/daily/5174/Life-with-the-Fed-Sunshine-and-Lollipops Life With The Fed], Thomas Woods</ref><ref>[http://mises.org/daily/5185/The-Need-for-100-Reserves The Need for 100% Reserves], Frank D. Graham</ref> Those Libertarians who support full reserve banking would strongly support more flexible and forgiving bankruptcy laws in a fractional reserve banking environment, recognizing that no stigma should be attached to bankruptcy given the anti-Libertarian "unjust acquisition" of real wealth implicit in central banking, compulsory legal tender laws, fractional reserve banking and taxation.<ref>[http://mises.org/daily/4860 Money: Sound and Unsound], Mark Thornton commentary on Joseph Salerno's book</ref><ref name="Repudiating the National Debt">[http://mises.org/article.aspx?Id=1423 Repudiating the National Debt], Murray Rothbard</ref><ref>[http://www.mises.org/Books/mysteryofbanking.pdf Murray Rothbard, ''The Mystery of Banking'']</ref><ref>[http://gonzalolira.blogspot.com/2010/12/want-to-ruin-your-own-country-assume.html Want to Ruin Your Country?]</ref>

In the absence of sound money, over time large private corporations become mere extensions of powerful government and banking fiat.<ref>[http://www.zerohedge.com/news/2013-04-03/david-stockman-keynesian-endgame The Keynesian Endgame], David Stockman</ref><ref name="death"/><ref>[http://mises.org/rothbard/newlibertywhole.asp For A New Liberty], Murray Rothbard</ref><ref>[http://news.goldseek.com/EuroCapital/1313178959.php The Fix is In], Peter Schiff</ref> David Stockman has stated the following:.<ref>[http://www.zerohedge.com/news/2013-04-03/david-stockman-keynesian-endgame The Keynesian Endgame], David Stockman</ref>

{{quote|It not only shows that the so-called recovery is tenuous and highly skewed to a small slice of the population at the top of the economic ladder, but also that statist economic intervention has now become wildly dysfunctional. Largely based on opulence at the top, Wall Street brays that economic recovery is under way even as the Main Street economy flounders. But when this wobbly foundation periodically reveals itself, Wall Street petulantly insists that the state unleash unlimited resources in the form of tax cuts, spending stimulus, and money printing to keep the simulacrum of recovery alive.}}

Libertarians such as Murray Rothbard argue that in such a toxic monetary environment resource allocation is perverted by some or all of the following factors: corrupt alliances between so-called "private corporations" (which are often extensions of government or banking interests) and regulators; increasingly intensive business structures to suit the needs of a concentrated and cartelized banking system; and the constant overriding of small communities and local government planning with central government directives to satisfy the needs of big business.<ref>[http://news.goldseek.com/EuroCapital/1313178959.php The Fix is In], Peter Schiff</ref><ref name="death"/> In such a corrupted monetary system, libertarians argue that financial and man-made environmental crises cannot legitimately be blamed on "private" corporations but rather blame must fall squarely on the true source of the problem - centralized government control of credit and money, which in turn dilutes private property rights (especially in relation to traditional owners and farmers) and creates massive distortions in scarce resource allocation, with financial ''and'' environmental crises being the predictable consequence.<ref name="death"/><ref>[http://mises.org/rothbard/newlibertywhole.asp For A New Liberty], Murray Rothbard</ref><ref>[http://maxkeiser.com/2011/06/11/ote114-on-the-edge-with-peter-schiff/ Peter Schiff Interview with Max Keiser]</ref><ref>[http://www.marketoracle.co.uk/Article29029.html Getting Used to Life without Food], F. William Engdahl</ref>

Regarding the current accumulation of government bonds and private debt, many Libertarians believe that the creation of the [[Federal Reserve System|Federal Reserve]] under the [[Federal Reserve Act]] of 1913 was unconstitutional and consider that at least some of this accumulated debt should be canceled or forgiven ''prior'' to a return to the gold standard in recognition of its fundamental illegitimacy.<ref>[http://www.zerohedge.com/news/guest-post-federal-debt-criminal-scam-federal-reserve-criminal-syndicate Federal Debt As Criminal Scam], Charles Hugh Smith</ref><ref>[http://www.marketoracle.co.uk/Article29433.html The Never-Ending Economic Depression], Washington Blog</ref><ref>[http://www.zerohedge.com/article/antal-feketes-open-letter-ron-paul-impeach-bernanke Antal Fekete's Letter to Ron Paul]</ref><ref name="Repudiating the National Debt"/><ref>[http://www.youtube.com/watch?v=1zMv4Offm_8&feature=player_embedded#at=1341 Max Keiser Interview with Alex Jones]</ref><ref>[http://www.zerohedge.com/news/guest-post-federal-debt-criminal-scam-federal-reserve-criminal-syndicate Federal Debt As Criminal Scam], Charles Hugh Smith</ref><ref>[http://blog.mises.org/18590/roubini-thoroughly-confused-by-austrian-economics/ Roubini Confused], Justin Ptak</ref> Arguably this would be supported by the "just acquisition" jurisprudence of legal philosopher [[Robert Nozick]] and Libertarian advocate [[Murray Rothbard]].<ref name="Repudiating the National Debt"/> As Murry Rothbard states:<ref>[http://angloaustria.blogspot.com/2010/05/quote-of-day-on-repudiation.html The Ethics of Liberty], Murray Rothbard</ref>

{{quote|Many libertarians fall into confusion on specific relations with the State, even when they concede the general immorality or criminality of State actions or interventions. Thus, there is the question of default, or more widely, repudiation of government debt. Many libertarians assert that the government is morally bound to pay its debts, and that therefore default or repudiation must be avoided. The problem here is that these libertarians are analogizing from the perfectly proper thesis that private persons or institutions should keep their contracts and pay their debts. But government has no money of its own, and payment of its debt means that the taxpayers are further coerced into paying bondholders. Such coercion can never be licit from the libertarian point of view. For not only does increased taxation mean increased coercion and aggression against private property, but the seemingly innocent bondholder appears in a very different light when we consider that the purchase of a government bond is simply making an investment in the future loot from the robbery of taxation.}}

In late 2010, financial commentator Max Keiser started the [[Buy Silver Crash JP Morgan Campaign 2010]] in an attempt to expose the flaws underlying the [[fractional reserve banking]] system.<ref>[http://www.youtube.com/watch?v=1zMv4Offm_8&feature=player_embedded#at=1341 Max Keiser Interview with Alex Jones]</ref><ref>[http://www.youtube.com/watch?v=_IKbAmsGey0&feature=player_embedded#at=66 Bob Chapman Silver Predictions]</ref><ref>[http://www.guardian.co.uk/commentisfree/2010/dec/02/jp-morgan-silver-short-selling-crash Want JP Morgan to crash? Buy silver], Max Keiser</ref>

Spontaneous protests against the Federal Reserve and the current financial system commenced in September 2011 across the United States and current protests can be found on the [http://www.occupytogether.org/ OccupyTogether.org] website.

====Free Banking and Full Reserve Banking====

On the issue of the required level of bank reserves, Austro-libertarians are sharply divided on the optimal solution to eliminate the price distorting and destructive forces inherent in fractional reserve banking.<ref>[http://www.thedailybell.com/29047/Anthony-Wile-Antal-Fekete-Gold-Backwardation-and-the-Collapse-of-the-Tacoma-Bridge Antal E Fekete]</ref><ref>[http://mises.org/journals/qjae/pdf/qjae13_4_2.pdf Fractional Reserve Free Banking: Some Quibbles], Philip Bagus and David Howden</ref><ref name="Cochran_Free">John P. Cochran. [http://mises.org/daily/4898 ''Free Banking''], ''Mises Daily'', review of ''Free Banking: Theory, History, and a Laissez-Faire Model'' by Larry Sechrest</ref><ref>[https://mises.org/journals/qjae/pdf/qjae15_2_3.pdf Against Monetary Disequilibrium Theory], Laura Davidson</ref>

Some Austrian scholars advocate "free banking", where banks are legally permitted to engage in fractional-reserve banking activities ''provided'' they comply with the standard laws against fraud and are not supported in any way against the possibility of bank runs and are forced into bankruptcy should they not be able to pay their debts as and when they fall due.<ref name="Cochran_Free" /> Provided depositors are clearly made aware that their demand deposits are being lent out and are not universally available for immediate withdrawal and provided there is no way in which such banks are propped up in the face of bank runs, free banking advocates do not support outlawing fractional reserve banking as embezzlement ''per se''.

Advocates of this system of banking include Lawrence White, Steven Horwitz, George Selgin, and Kevin Dowd, amongst others.<ref name="Cochran_Free" /> F.A. Hayek also advocated the de-nationalization of money production and implicitly supported a free banking financial system in some of his works on monetary reform.<ref>[http://www.mises.org/store/Free-Market-Monetary-System-A-P553.aspx?AFID=14 ''Free Market Money System''] by [[F.A. Hayek]]</ref>

Rothbardian-oriented Austrian scholars advocate "[[full reserve banking]]", considering fractional-reserve banking and the associated issuance of irredeemable paper money to be inherently fraudulent, unethical, unjust, disruptive and dysfunctional, akin to embezzlement and counterfeiting.<ref>[http://www.zerohedge.com/article/citizen-sues-atlanta-fed-based-allegation-its-issuing-federal-reserve-notes-it-has-no-intent Citizen Sues Atlanta Fed], ZeroHedge</ref><ref>[http://mises.org/journals/qjae/pdf/qjae13_4_2.pdf Fractional Reserve Free Banking: Some Quibbles], Philip Bagus and David Howden</ref><ref>See for example these [[Murray Rothbard]] articles: [http://www.mises.org/money.asp What Has Government Done to Our Money?], [http://www.mises.org/story/1829 The Case for the 100% Gold Dollar]; [http://www.lewrockwell.com/rothbard/cartelization.pdf The Fed as Cartel], [http://www.lewrockwell.com/rothbard/rothbard191.html Private Coinage], [http://www.lewrockwell.com/rothbard/rothbard190.html Repudiate the National Debt]; [http://www.lewrockwell.com/rothbard/rothbard181.html Taking Money Back], [http://www.lewrockwell.com/rothbard/rothbard163.html Anatomy of the Bank Run], [http://www.lewrockwell.com/rothbard/rothbard128.html Money and the Individual]</ref> [[Full reserve banking]] would require banks to retain in reserve all deposits that are legally available for immediate withdrawal, and permit lending only from longer-term deposits.

Advocates of this system of banking include [[Murray Rothbard]],<ref name="The Mystery of Banking">[http://www.mises.org/Books/mysteryofbanking.pdf ''The Mystery of Banking''], Murray Rothbard</ref><ref name="The Case for a 100% Gold Dollar">[http://mises.org/story/1829 The Case for a 100% Gold Dollar], Murray Rothbard</ref> [[Jesus Huerta de Soto]],<ref>[http://www.mises.org/books/desoto.pdf ''Money, Bank Credit, and Economic Cycles''], Jesus Huerta de Soto, First English edition (2006), pp. 98-114</ref> [[Jörg Guido Hülsmann]],<ref>[http://mises.org/media/4014 The Economics of Legal Tender Laws], and [[Jorg Guido Hulsmann]] (includes detailed commentary on [[central banking]], [[inflation]] and [[fractional reserve banking|FRB]])</ref><ref name=FBFB>[http://mises.org/journals/rae/pdf/RAE9_1_1.pdf Free Banking and the Free Bankers], Jörg Guido Hülsmann, Quarterly Journal of Austrian Economics (Vol. 9, No. 1)</ref><ref>[http://www.lewrockwell.com/lewrockwell-show/2011/01/04/181-hyperinflation-ahead/ Interview with Jörg Guido Hülsmann], The Lew Rockwell Show</ref> amongst others.<ref>[http://mises.org/journals/qjae/pdf/qjae13_4_2.pdf Fractional Reserve Free Banking: Some Quibbles], Philip Bagus and David Howden</ref><ref>[http://mises.org/daily/4880 The Faults of Fractional-Reserve Banking], Thorsten Polleit</ref>

Commentators David Stockman and Michael Shedlock also support the creation of full reserve postal savings banks that do not lend out money from checking accounts.<ref>[http://globaleconomicanalysis.blogspot.com.au/2013/04/stockman-fires-back-at-krugman-labeling.html David Stockman Fires Back At Krugman]</ref> According to Michael Shedlock:<ref>[http://globaleconomicanalysis.blogspot.com.au/2013/04/stockman-fires-back-at-krugman-labeling.html David Stockman Fires Back At Krugman]</ref>

<blockquote>And the solution is so easy too. Open a bank that charges nominal fees for checking and makes no loans. Such a bank would not need loan officers or other high-priced personnel. It would offer safekeeping of money and simple checking accounts for a fee.

Those who want interest on their money should have to take a risk, the risk of a possible loss.

Finally, and as I have pointed out before, lending of checking accounts is outright fraud. Checking accounts are supposed to be money available on demand, but since Greenspan authorized Sweeps in 1994, almost none of it is.</blockquote>

Most recently, in late 2010, two British MP's, Douglas Carswell and Steven Baker, sought to introduce legislation into the British Parliament that would allow depositors to decide if their money should be lent out and for what period.<ref>[http://www.telegraph.co.uk/finance/financetopics/financialcrisis/8004540/The-radical-reform-that-would-end-boom-and-bust-in-banking.html ''The Radical Reform in Banking''], Toby Baxendale, ''Daily Telegraph'', 15 Sept 2010</ref> If this legislative reform were to pass, British depositors would have the option to elect to save their money in full reserve bank accounts.

In early 2013, the idea of full reserve banking began to reappear in mainstream circles, after other "remedies" appeared to fail or only defer the next crisis, but not solve the banking "problem".<ref>[http://www.telegraph.co.uk/finance/comment/jeremy-warner/10107375/The-banking-revolution-that-would-wipe-out-Britains-debts.html Banking Revolution]</ref> Even some "establishment" economists such as Jeffrey Sachs has openly criticized unregulated fractional reserve banking, and called for a clear legislative division between heavily regulated and controlled liquidity-supplying high-reserve fractional reserve banking and open unprotected speculation, which would be subject to risk of bankruptcy.<ref>[http://www.youtube.com/watch?feature=player_embedded&v=7VOWnnEphjI Jeffrey Sachs audio]</ref>

Antal E. Fekete of the New Austrian School advocates return of real bills (which are self-liquidating debt) and criticizes the Rothbardian position opposing fractional reserve banking as impractical and ahistorical.<ref>[http://www.thedailybell.com/29047/Anthony-Wile-Antal-Fekete-Gold-Backwardation-and-the-Collapse-of-the-Tacoma-Bridge Antal E Fekete]</ref> He has stated:

<blockquote>The altercation between the American Austrians and the New Austrian School of Economics is a tragic waste of talent. We should settle our differences not by mud-slinging and by calling names, but through high level scientific debates... I sincerely hope that they accept and we can join forces in preparing the ground for the triumph of the gold standard after a brief reactionary period in history dominated by the regime of irredeemable currency.</blockquote>

====Market Money: Gold and Silver and Crypto-Currency====
In the absence of reform, many Austrians and libertarians are actively buying gold and silver and transferring savings to Bitcoin which cannot be created at the whim of governments.<ref>[http://goldinvestingnews.com/26510/peter-schiff-gold-money-fiat-currency-price-outlook-central-banks-investing.html Peter Schiff on Gold and Money]</ref><ref>[http://www.ronpaul.com/on-the-issues/fiat-money-inflation-federal-reserve-2/ Honest Money]</ref><ref>[http://www.lewrockwell.com/paul/paul125.html Fiat Paper Money], Ron Paul</ref><ref>[http://www.mogamboguru.com/writings.html Mogambo Guru]</ref><ref>[http://www.youtube.com/watch?v=O2rsQhsTTbE Max Keiser on Bitcoin]</ref> Many Austrians believe gold and silver and other essential commodities are ideal investments during this period of fiat money expansion and experimentation, as no government in the history of the world has ever escaped economic catastrophe and debasement of the currency after adopting a pure fiat money<ref>[http://historysquared.com/2012/06/26/fiat-currencies-trend-towards-their-intrinsic-value-often-rather-quickly/ Fiat Currencies Trend Towards Their Intrinsic Value]</ref><ref>[http://www.zerohedge.com/news/2013-04-05/guest-post-more-monetary-quackery More Monetary Quackery]</ref><ref>[http://goldinvestingnews.com/26510/peter-schiff-gold-money-fiat-currency-price-outlook-central-banks-investing.html Peter Schiff on Gold and Money]</ref><ref>[http://www.ronpaul.com/on-the-issues/fiat-money-inflation-federal-reserve-2/ Honest Money]</ref><ref>[http://www.lewrockwell.com/paul/paul125.html Fiat Paper Money], Ron Paul</ref><ref>[http://www.professorfekete.com/articles/AEFFiatMoneyInDeathThroes.pdf Fiat Money in Death Throes], Antal E Fekete</ref><ref>[http://www.professorfekete.com/articles%5CAEFAmericanBasesGermanyGoldBasis.pdf American Bases], Antal E Fekete]</ref> and keeping money in bank deposits is becoming increasingly risky as governments renege on promises to keep depositors' money safe.<ref>[http://truthingold.blogspot.com.au/2013/04/the-frightening-truth-about-cyprus-bail.html?showComment=1365106177301 The Truth About the Cyprus "Bail In"]</ref><ref>[http://www.zerohedge.com/news/2013-04-02/ron-paul-great-cyprus-bank-robbery The Great Cyprus Bank Robbery], Ron Paul</ref>

===Neo-Chartalism and Modern Monetary Theory===

Neo-Chartalists and associated advocates of Modern Monetary Theory (MMT) also accept that the current bank-dominated monetary system is dysfunctional, but advocate reform ''within'' the strictures of a fiat monetary system rather than looking to return to a commodity-based monetary system.<ref>[http://www.cnbc.com/id/45795986/Modern_Monetary_Theory_and_Austrian_Economics Modern Monetary Theory and Austrian Economics], John Carney</ref>

Most advocates of MMT support deficit spending to support the economy, believing governments can never go bankrupt in a fiat monetary system.

Austrians and sound money advocates criticize supporters of MMT not in their description of the current monetary system (which many Austrians consider reasonably accurate) but for their "shallow" understanding of the dangers of unfettered government spending through fiat money creation and their "naive" support of deficit spending and inflationary policies as an "easy" way out of economic crises.<ref>[http://www.soundmoneyproject.org/?p=4881 The Upside-Down World of MMT], Robert Murphy</ref><ref>[http://www.zerohedge.com/news/sean-corrigan-crucifies-mmt Sean Corrigan Crucifies MMT], ZeroHedge.com</ref>

===Debt-free fiat money===

The concept of debt-free money is most notably represented by [[Michael Rowbotham]], [[Stephen Zarlenga]] of the American Monetary Institute, Bill Still producer of the well-known ''[http://www.youtube.com/watch?v=JXt1cayx0hs Money Masters]'' videos and [[Ellen Hodgson Brown]].<ref>[http://www.youtube.com/watch?v=6MKjlPmVVK4 Bill Still on gold reserves]</ref> They advocate various forms of "pure" fiat money issuance by government, without the need for the government to issue a bond to print or issue the fiat money. More recently, mainstream economists have begun to seriously consider the issuance of debt-free money as a policy solution to the current ongoing crisis.<ref>[http://blogs.reuters.com/anatole-kaletsky/2013/02/07/a-breakthrough-speech-on-monetary-policy/ A Breakthrough Speech on Monetary Policy], Anatole Kaletsky</ref><ref>[http://krugman.blogs.nytimes.com/2013/01/07/be-ready-to-mint-that-coin/ Be Ready To Mint That Coin], Paul Krugman</ref><ref>[http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/9970294/Helicopter-QE-will-never-be-reversed.html Helicopter QE will never be reversed], Ambrose Evans-Pritchard</ref>

Currently virtually all money issued in modern economies is initially sourced from debt; in other words, it is "debt money" because it is created via some entity (government or business or individuals) borrowing fiat money into existence and the money being created by a bank before it is spent by the government or by a business or by an individual. "Debt money" is therefore money created in parallel with debt or [[Credit (finance)|credit]] via the process of [[fractional reserve banking]] or the issuance of a bond from the central bank.

"Debt-free money" is a "true" or "pure" fiat currency issued by the [[Treasury]] of a [[central government]], where there is no requirement for its eventual return as a condition of its creation (except by way of payment of taxes).<ref name="death"/> It is argued by Rowbotham and others that this would allow for the substantial lowering of tax rates, would allow public works projects to be funded cheaply, and would stimulate economic development, if the fiat money is spent sensibly on inflation-lowering long-term capital projects.<ref name="death"/>

[[Michael Rowbotham]] seeks the cancellation of "unjust" debts (such as [[third world debt]]), and, crucially and most importantly, a [[social security]] [[safety net]] involving a guaranteed minimum [[social credit|debt-free income]] (sourced from government-issued debt-free money independent of any central bank) for all citizens in the debt-based economy. Under this proposal, every adult citizen would be given a livable debt-free income transferred electronically into their [[bank account]], simply by virtue of their [[citizen]]ship. They could then use this debt-free money to pay off their [[mortgage]]s or to live, debt-free, without being compelled to work as a [[wage slavery|wage slave]] in the market economy if they chose not to. The government would finance these payments simply by ordering the private banks to accept their electronic instructions as legal tender. It would therefore not result in the expansion of [[government debt]].<ref name="death"/>

Ex-U.S. Treasury Department analyst Richard C. Cook also supports the issuance of debt-free money and zero-interest credit by the central government and has provided a detailed blueprint of monetary reform recommendations to transition to a debt-free money supply.<ref name="marketoracle.co.uk"/>

Some commentators have speculated that the issuance of massive amounts of debt-free pure fiat money is already happening, and we are currently living in a massive money printing experiment, as so-called "quantitative easing" will never be reversed.<ref>[http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/9970294/Helicopter-QE-will-never-be-reversed.html Helicopter QE will never be reversed], Ambrose Evans-Pritchard</ref> Ambrose Evans-Pritchard has warned:<ref>[http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/9970294/Helicopter-QE-will-never-be-reversed.html Helicopter QE will never be reversed], Ambrose Evans-Pritchard</ref>

{{quote|If Lord Turner's helicopters are ever needed, we can be sure that the Anglo-Saxons and the Japanese will steal a march, while Europe will be the last to move. The European Central Bank will resist monetary financing of deficits until the bitter end, knowing that such action risks destroying German political consent for the euro project.

By holding the line on orthodoxy, the ECB will guarantee that Euroland continues to suffer the deepest depression. Once the dirty game begins, you stand aside at your peril.

A great many readers in Britain and the US will be horrified that this helicopter debate is taking place at all, as if the QE virus is mutating into ever more deadly strains.

Bondholders across the world may suspect that Britain, the US and other deadbeat states are engineering a stealth default on sovereign debts, and they may be right in a sense. But they are warned. This is the next shoe to drop in the temples of central banking.}}

====Properties====
According to its proponents, government-issued debt-free fiat currency (such as debt-free notes and coins) can circulate perpetually in the economy as "stable" money and although not as secure as [[hard currency]], government-issued debt-free notes and coins (such as United States Notes and silver certificates) do not have the same effects of debt-based money (which require pertpetual interest payments to be tied to the creatin of new money).<ref>[http://www.entrewave.com/freebooks/docs/a_pdfs/gnhm.pdf Honest Money]</ref> It should be noted however that fiat currency can be a source of [[hyperinflation]] if its production is not controlled, as the government has the potential to issue unlimited amounts of fiat currency - ''provided'' it is accepted as "money" by the private banking system.<ref>[http://mises.org/books/shorthistorypapermoney.pdf A Short History of Paper Money in the United States], William M. Gouge, Mises Institute</ref> Notably, the Federal Reserve reportedly threatened not to recognize the trillion dollar platinum coin should the Obama Administration try to mint one.<ref>[http://www.buzzfeed.com/zekejmiller/the-trillion-dollar-coin-was-killed-by-the-fed Trillion Dollar Coin Killed By Fed]</ref><ref>[http://webofdebt.wordpress.com/2013/01/18/the-trillion-dollar-coin-joke-or-game-changer/#more-5323 The Trillion Dollar Coin], Ellen Hodgson Brown</ref> Debt-free notes and coins in circulation (being defined as [[Money supply#M0|M0]]) now account for a tiny fraction of the total debt-based M3 [[money supply]] in all modern debt-based economies (and debt-free M0 is also generally less than 10% of the total [[Money supply#M2|M2]] money supply in most developed economies).<ref>[http://www.dollardaze.org/blog/?post_id=00216 Global Money Supply Ratios]</ref>

Instead of [[money]] being created "indirectly" and "furtively" at the point of loan creation by the private banking system, with periodic bailouts to already-rich bankers and a "boomerang" boom-bust cycle as debt levels expand and contract, this debt-free "pure fiat" money would be created directly and openly by the democratically elected government and permanently issued to its citizenry by way of instruction to the private banking system. An example would be the coining of a trillion dollar platinum coin by the US government to pay off some of the Federal debt and continue its deficit spending in times of recession or depression. There would be no requirement for this money to returned (plus interest) and be extinguished as a condition of its creation, which is the central feature of all debt money systems.

Michael Rowbotham argues that this system of "debt-free" money issuance would not dramatically raise consumer prices (or at least would not be as inflationary or as dysfunctional as the current compounding debt-based system). He argues that this would also reduce overconsumption and the associated environmental damage associated with debt-based consumerism. It would also give individuals the free time to engage once again in non-marketable religious, artistic and recreational activities if they chose to do so.<ref name="death"/>

It is acknowledged that, in the absence of tax rates which ensure the return of this "pure" fiat to government coffers, this would be "inflationary" in the traditional sense, but proponents of debt-free fiat money issuance argue that if this "pure" government spending is directed to capital works projects and other long-term projects, this "pure" fiat money issuance would not result in excess price inflation, although it would dramatically increase base money. Michael Rowbotham argues that if bank reserve and capital ratios were increased and bank regulations on derivatives were imposed ''at the same time'' as the increase in "pure" base money was occurring, the two policies would balance each other out and no appreciable price inflation would be felt by the public at large.<ref name="death"/> The increase in base money would be inflationary, but the increase in reserve requirements would be deflationary, resulting in no significant net increase in the total money supply (assuming the government was sufficiently skilled in balancing these forces through the transition to a predominantly debt-free monetary system).

It is to be expected that these policies would be violently opposed by the private banking "elite", as it would render impotent their control over the money supply, dissipating this crucial decision-making power away from its current power base, from private banks to elected governments.<ref>[http://www.thenewamerican.com/economy/economics/item/14238-obama%E2%80%99s-trillion-dollar-coin-exposes-federal-reserve-scam Obama’s Trillion-Dollar Coin Exposes Federal Reserve Scam], Alex Newman, ''New American''</ref><ref>[http://webofdebt.wordpress.com/2013/01/18/the-trillion-dollar-coin-joke-or-game-changer/#more-5323 The Trillion Dollar Coin], Ellen Hodgson Brown</ref> It would also be likely to reduce [[economic growth]], dramatically increase the cost of labor and, potentially, result in an exacerbation of price inflation and malinvestment.<ref>[http://globaleconomicanalysis.blogspot.com/2010/12/fatally-flawed-end-fed-proposal-from.html Fatally Flawed End the Fed Proposal], MISH</ref> However, Rowbotham, Zarlenga and Still all argue that this proposal would address the problem of inequality inherent in a debt-based monetary system and reduce the devastating impact of personal [[bankruptcy]] and allow individual citizens to quickly recover from financial hardship.<ref name="death"/> They also argue that this social security measure (and government spending in general) would not have to be paid for by future generations from future streams of [[income tax]].<ref name="death"/>

====Criticism of "Greenbacker" debt-free money issuance====
In late 2010, [[Ellen Hodgson Brown]] and Austrian School commentator [[Gary North]] engaged in an intense debate over the direction of [[monetary reform]], with gold-standard supporter [[Gary North]] accusing Brown of going down a path that inevitably leads to the economics of fascism and hyperinflation.<ref>[http://www.lewrockwell.com/north/north908.html Criticism of Ellen Hodgson Brown]</ref><ref>[http://www.lewrockwell.com/north/north912.html Ellen Betrays], Gary North</ref> Government deficit spending funded with either paper money or compliant public bank lending is not a substitute for private consumption due to the inability of coercive goverment to invest rationally long-term, given the [[economic calculation problem]] inherent in socialized economies and the interests of governments and politicians being very different from the average consumer.<ref>[http://dailyreckoning.com/downside-after-the-returns-stop-diminishing-part-ii/ Nazi Germany], Bill Bonner</ref> North argues that it is not possible to trust a coercive, non-market entity - government - to limit its spending in circumstances where pure fiat money is in the hands of politicians and that [[inflation]], being an invisible tax, is much harder to resist than regular taxes. Greedy, corrupt, short-sighted politicians could buy off special interest groups to get elected and the general public could only watch on the sidelines as the purchasing power of their dollars steadily declines; this decline would be blamed on currency speculators and eventually foreign currencies (including "natural" monies such as gold and silver and copper) would have to be banned and confiscated from the public to ensure continued use of depreciating fiat.<ref name="North_Congress">Gary North. [http://www.garynorth.com/public/7030.cfm "Economic Error #15: Congress Can Safely Be Trusted to Manage the Money System Without Any Price Inflation."]. Referenced 2011-02-24.</ref> The fundamental error of Brown's analysis, according to North, is that Brown expects the source of the problem - corrupt governments bought and paid for by bankers - to be the source of the solution. She calls for a move away from war spending, whilst recoginizing that the current fiat monetary system favors government spending on war.<ref>[http://www.marketoracle.co.uk/Article28831.html More Efficient Ways to Stimulate Economy], Ellen Hodgson Brown</ref> To date, she has yet to reconcile these inconsistencies in her writings.

[[Mike Shedlock]] agrees with the abolition of fractional reserve banking, but criticizes the concept on similar grounds as North. Commenting on a bill to end the Fed introduced by Representative [[Dennis Kucinich]], he wrote: "Neither sound money nor the free market comes from printing money into existence. Arguably the only thing worse than the Fed printing money out of thin air is Congress printing money out of thin air for the purpose of full employment and/or any other absurd ideas Congress has."<ref>[http://www.marketoracle.co.uk/Article25175.html Kucinich's End the Fed campaign fatally flawed], Mike Shedlock.</ref>

Peter Schiff also believes getting rid of the Fed and returning money issuance to Congress would be worse than the current system.<ref>[http://www.youtube.com/watch?v=kEDmj3qocag Doug Casey Interview with Peter Schiff]</ref>

Austrians criticize leftists' inability to see that printing money and government spending is not the same as voluntary spending by private individuals as government spending distorts the capital structure; does not result in lasting economic growth due to the [[economic calculation problem]]; and is not subject to normal cautious profit and loss considerations given that the government can continually recover from errors by simply printing the money it spends.<ref>[http://www.marketoracle.co.uk/Article28831.html More Efficient Ways to Stimulate Economy], Ellen Hodgson Brown</ref><ref>[http://www.youtube.com/watch?v=qDKvSMZNgjc Peter Schiff Rips Paul Krugman]</ref> They also avoid or ignore the fact that historically governments have often acted in their own self-interest and concentrated power in themselves and their corrupt associates and families rather than benignly ruling for the benefit of the populace and their long-term interests. Every sovereign - without exception - that has been given the unfettered power to print fiat money has eventually printed too much debt-free money and in the end had to ban competing currencies (such as foreign currency or metallic money), and face revolt, revolution, hyperinflation or other social catastrophe.<ref>[http://www.marketoracle.co.uk/Article39762.html Fiat Currency Collapse]</ref>

====Debt-free money issuance: Support from free market Austrians====
In contrast to Gary North's attacks on "Greenbacker" Ellen Hodgson Brown, and Mike Shedlock's criticism of debt-free money printing by Congress as the worst of all choices, noted Austrian monetary economist Joseph Salerno has voiced his support for the idea of debt-free money issuance ''in comparison to the current debt-based system'', if a choice is to be made between the two.<ref>[http://www.mises.org/daily/6350/The-Flipside-of-the-Trillion-Dollar-Coin The Flipside of the Trillion Dollar Coin]</ref> In his defense of the trillion dollar coin idea, he states the following:<ref>[http://www.mises.org/daily/6350/The-Flipside-of-the-Trillion-Dollar-Coin The Flipside of the Trillion Dollar Coin]</ref>

{{quote|Let me be clear: my intention is not to deny that the trillion-dollar coin is a ludicrous and dangerous idea; it is rather to point out that the Fed is a more ludicrous and dangerous idea.}}

In relation to the "dangers" of Congressional control of the money supply, Salerno responds as follows:<ref>[http://www.mises.org/daily/6350/The-Flipside-of-the-Trillion-Dollar-Coin The Flipside of the Trillion Dollar Coin]</ref>

{{quote|Obviously, congressional control of the fiat money supply is far from the ideal monetary system, which involves the complete separation of government and money through the establishment of a commodity money, such as gold, the supply of which is determined exclusively by market forces. Nonetheless, there is much merit in replacing the opaque and pseudo-scientific control of "the money supply process" by the entrenched bureaucrats of the Fed with overtly political control of money by elected officials and partisan Administration appointees.}}

Salerno outlines a number of advantages of "simple inflation" over the current debt-based round-about system of money creation:<ref>[http://bastiat.mises.org/2013/05/bring-on-the-helicopter-money-and-gut-the-fed/ Bring on the Helicopter Money - and Gut the Fed], Joseph Salerno</ref>

{{quote|...as a permanent policy, it would be a wonderful device for wresting control of monetary policy from un-elected, secretive, and pseudo-scientific Fed bureaucrats and placing it under a Congress subject to popular scrutiny and elections. Of course this would not be an ideal system, which would be a hard money consisting of a market supplied commodity like gold. But it would have a number of significant advantages over the present Fed-dominated system. First, as just noted, money creation by Congress would be far more transparent and understandable to the public than the arcane procedures by which the Fed expands the money supply. Second, the injection of new money directly into the economy via government purchases of goods and services would avoid the continual and systematic distortion of financial markets and the interest rate currently caused by Fed open market operations. This process of “simple inflation” as Mises called it would, therefore, certainly produce rising prices but would not generate business cycles of recurring booms and busts. Finally, the Fed could no longer operate as a bailer-outer of last resort, surreptitiously bailing out gigantic domestic and foreign financial institutions in the absence of discussion and consent by Congress and the knowledge of the public.}}

===Public Fractional Reserve Banks===

[[Ellen Hodgson Brown]] supports nationalization of the private banking system once the full losses on the banks' portfolios are recognized.<ref>[http://www.huffingtonpost.com/ellen-brown/restoring-economic-sovere_b_823697.html Restoring Economic Sovereignty], Ellen Hodgson Brown</ref><ref>[http://www.webofdebt.com/articles/new_theory.php Time for a New Theory of Money]</ref><ref>[http://globaleconomicanalysis.blogspot.com/2011/01/steve-keen-responds-to-world-economic.html Exponential Growth], MISH</ref><ref>[http://www.webofdebt.com/articles/force_nationalization.php Foreclosuregate could force bank nationalization]</ref><ref>[http://webofdebt.wordpress.com/2010/12/22/austerity-fails-in-euroland-time-for-some-%e2%80%9cdeficit-easing%e2%80%9d/ Austerity Fails in Europe], Ellen Hodgson Brown</ref> Ellen Hodgson Brown has repeatedly called for the creation of publicly-owned banks similar to the North Dakota model, where the interest earned by these state government-owned banks could be ploughed back into local economies financing public works and local government services instead of being sucked out of local communities into the major commercial banks.<ref>[http://www.marketoracle.co.uk/Article29338.html Why Aren't Banks Lending], Ellen Hodgson Brown</ref> <ref>[http://www.marketoracle.co.uk/Article39053.html Why Bankers Rule the World]</ref> She has cited numerous historical examples where public banks worked successfully for many decades, including in Australia and Costa Rica, as examples of the viability and benefit of public fractional reserve banks.<ref>[http://www.webofdebt.com/articles/commonwealth_bank_aus.php CBA]</ref><ref>[http://www.truthdig.com/report/item/public_banking_in_costa_rica_a_remarkable_little-known_model_20131111 Costa Rica]</ref>

Brown also supported "[[Quantitative easing|QE2]]" - which she described as a necessary and desirable funding of government spending via money printing rather than by the indirect means of issuing of interest-bearing government bonds, which simply allows private bankers to profit from costless money creation.<ref>[http://www.marketoracle.co.uk/Article24443.html QE2 and the Looming Threat of a Crippling Debt Service]</ref><ref>[http://www.marketoracle.co.uk/Article24719.html QE2 and Hyperinflation], Ellen Hodgson Brown</ref>

Many monetary reformers who call on the government to take back the money creation function from debt-supplying private for-profit banks also call for full reserve banking to remove the bank's alleged "embezzlement" and "counterfeiting" abilities.<ref>[http://www.thenewamerican.com/economy/economics/item/14238-obama%E2%80%99s-trillion-dollar-coin-exposes-federal-reserve-scam Obama’s Trillion-Dollar Coin Exposes Federal Reserve Scam], Alex Newman, ''New American''</ref><ref name="marketoracle.co.uk"/><ref>[http://www.monetary.org/ AMI website, calling on full-reserve banking]</ref>

It should be noted that if Austrian claims that [[fractional reserve banking]] produces [[Austrian business cycle theory|business cycles]] is correct, public ownership of banks will not stop periodic economic crises and business cycles from occurring, ''unless'' strong controls and very high reserve ratios are imposed on all banks. Many would consider this "solution" of publicly-owned fractional reserve banks merely perpetuating the problem.

Stephen Zarlenga's AMI organization has strongly criticized Brown's support of fractional reserve banking as perpetuating the very problems she seeks to solve. Jamie Walton, from the AMI, wrote the following review:<ref>[http://www.monetary.org/review-of-ellen-browns-the-web-of-debt/2010/12/ Review of Web of Debt], Jamie Walton</ref>

{{quote|Brown’s plan to takeover (rescue?) the big banks to continue a “fraud” within the safety of government is totally wrong. Placing the “fraud” in government doesn’t make it right, but might make it harder to stop. Does Brown realize that her statements and conclusions are inconsistent, and that what she proposes leads to exactly the same things that she’s claiming to be opposed to?

Experience shows that if the issue of money is unduly affected by commercial incentives, then, over time, “commercial loans” (i.e., debt) will dominate over more direct methods of issue. So we’d be kept in exactly the same position we’re in now: within a totally unnecessary, ever-growing and impossible-to-pay debt trap.

Obviously the sensible action to take is to remove the “fraud” and debt and retain a healthy and competitive banking sector. This is easily done with a law based on the existing provisions in the U.S. Constitution.

But Brown avoids this obvious solution and instead advocates that our government gets into banking.

It seems incredible that Brown is now advocating what she’s described throughout most of the book as fraud, counterfeiting and Ponzi, pyramid or ‘smoke-and-mirrors’ schemes. Why? Perhaps the answer lies in Brown’s apparent confusion and/or fundamental misunderstandings about the nature of money and the role of government in society, and about monetary history and monetary reform.}}

===Left-leaning ideas===
The highly successful "Icelandic Solution" of debt relief for the poor and criminal sanctions against corrupt bankers was implemented by a left-wing government<ref>[http://www.zerohedge.com/news/2013-01-26/only-3-minutes-worth-listening-davos Interview with Iceland's President Olafur Ragnar Grimson]</ref> although some question whether the policies truly reflected left-wing ideas given the constraints on Icelandic policy-making at the time.<ref>[http://reason.com/blog/2012/04/17/why-iceland-presidents-left-wing-critiqu Why Iceland President Left-Wing Critique is Right], ''Reason''</ref>

Some left-leaning [[social democrats]] would also support additional longer-term measures such as ''raising'' minimum wages immediately after a financial crisis (rather than reducing wage rates - which they argue only prolongs the depression through reduced spending), taxing the banking system and the implementation of strongly redistributive income and [[land tax]]es to ensure the financially dispossessed are "replenished" with income. They would also support a [[social security]] [[safety net]] involving the provision of unemployment benefits and government-supplied free medical care, education and other essential services and [[public goods]].<ref>[http://www.youtube.com/watch?v=g4yVhxDTom0 Steve Keen interview with Max Keiser]</ref> It is to be expected however that this coercive regulatory regime would result in the systematic destruction of the entrepreneurial class as profits are squeezed by rising costs. In addition, without the issuance of debt-free [[fiat currency]] the result of these programs would be the persistent, exponential, accumulation of [[government debt]], financed by the [[private banking]] system by the issuance of [[government bonds]]. If not properly managed, this could result in a progressively higher tax burden and may result in higher [[interest rates]] in the long term, as financiers require higher [[interest rates]] to lend to the increasingly indebted central government. Without the issuance of [[debt-free money]] these policies can be self-defeating, with the net result simply being that a larger stream of guaranteed income goes to the [[private bank]]ing system via the issuance of interest-bearing [[government bonds]] (which are purchased by the [[private banks]] "out of nothing" through [[fractional reserve banking]] techniques). This [[government debt]] must then be financed in perpetuity by compulsorily acquired [[tax]]es from future generations.

It could be argued that the early success of extreme so-called "right-wing" (but socialist government-guided) [[fascism]] in [[Nazi Germany]] and [[Italy]] in the period after [[World War I]] was a response to the economic chaos created by the debt-based monetary system in early 20th century [[Europe]]. Some of the economic policies introduced by [[Hitler]] and [[Mussolini]] were in direct response to the economic collapse and social [[anarchy]] caused by soaring government and personal debt levels in both countries in the post-[[Versailles Treaty]] era, and (indirectly) arose from the writings of [[Silvio Gesell]] and others on the nature of the problems associated with a debt-based [[monetary system]]. Although many [[historian]]s justifiably criticize many of the non-economic policies of the [[fascist]] governments of [[Germany]] and [[Italy]] during this period, the [[economics of fascism]] seemed to provide a degree of [[prosperity]] to the populace, and arguably achieved the government's stated objective of restoring economic and social order during the pre-[[World War II]] era.<ref>[http://www.webofdebt.com/articles/bankrupt-germany.php How a Bankrupt Germany Solved its Economic Problems], Ellen Hodgson Brown</ref> These economic policies and their results are the subject of vigorous debate even today.<ref name="North_National_Great">Gary North. [http://www.garynorth.com/public/7009.cfm "Historical Error #27: Hitler's National Socialist Economic Policies Ended the Great Depression in Germany."], ''GaryNorth.Com''. Referenced 2011-02-24.</ref> (See also [[Inflation in Nazi Germany]].)

Similarly it could be argued that [[socialism]] and [[communism]] were movements inspired by the inequalities caused by the intense (and in [[Karl Marx]]'s view unsustainable) concentrations of monetary wealth, power and influence inherent in the practice of [[fractional reserve banking]] in a [[laissez-faire]], [[monopoly]] [[capitalist]] environment (particularly when [[fractional reserve banking]] is combined with a [[gold standard]] or other [[hard currency]] [[monetary system]]).<ref>[http://www.zerohedge.com/news/2013-11-07/marc-faber-warns-karl-marx-was-right Karl Marx Was Right], Marc Faber</ref><ref>[http://www.nakedcapitalism.com/2009/02/steve-keen-roving-cavaliers-of-credit.html ''Roving Cavaliers of Credit'', Steve Keen, with commentary from Yves Smith at Naked Capitalism]</ref>

The [[communist]]/[[socialist]] solution to the problem of [[fractional reserve banking]] is simple: re-enfranchising workers through widespread organization and unionism, complete removal (and if necessary, violent non-democratic removal) of the allegedly "parasitic" financial, capitalist and upper classes, wholesale repudiation of [[government debt]] resulting in complete debt [[default]]; forced [[expropriation]] of [[land]] and wealth from the [[upper classes]] to the dispossessed and needy [[working classes]]; [[nationalization]] of the [[private banks]] (which has required armed [[coup]]s by the [[military]] in some past [[revolution]]s); and the return of the banking function from a dominant, speculative to a subordinate, administrative institution, where the banking system is reduced to a subservient arm of the centralized [[Leviathan]].<ref>[http://www.zerohedge.com/news/2013-11-07/marc-faber-warns-karl-marx-was-right Karl Marx Was Right], Marc Faber</ref> In this system, government-owned banks are directed by government policy; often provide different kinds of loans to different industry sectors at different interest rates depending on the perceived "needs" of the economy and the community; normally have a significant proportion of [[non-performing loan]]s due to weak or non-existent [[bankruptcy]] laws; and periodically "forgive" failed debts in recognition of the impossibility of some businesses in paying this debt money back. In addition, individuals are prohibited from possessing large property holdings, in excess of their individual needs.

It is to be expected that the [[profitability]] of the government-owned banking system would be more stable - but dramatically lower - than that in a debt-based [[capitalist]] economy. It is also to be expected that a significantly higher misallocation of resources could occur in this system, where lending decisions are "infected" by political considerations and are not made on the basis of expected [[return on investment]]. The risk of [[corruption]] in the banking system is also expected to be higher where there is no separation between the political and monetary systems in an economy. Market-oriented [[monetary reform]]ers and [[neo-classical]] economists therefore do not support [[nationalization]] of the [[private banking]] system.

It should be noted that partial [[nationalization]] of the [[private bank]]ing system would only be temporary, as any remaining [[private banks]] could still engage in unlimited [[fractional reserve banking]] and facilitate the eventual acquisition and control of any strategic assets in a partially socialized economic system. It is to be expected that in the absence of complete [[nationalization]] of the banking system, the [[private bank]]ing system would eventually dominate the financial system in any nominally [[socialist]] society.

==Corporatism, Crony Capitalism and Confiscation==
Assuming current trends continue, "Corporatism",<ref>[http://www.lewrockwell.com/2010/04/ron-paul/dont-call-obama-a-socialist/ Corporatism], Lew Rockwell</ref> "Rigged Market Capitalism",<ref>[http://maxkeiser.com/tag/rigged-market-capitalism/ Rigged Market Capitalism]</ref> or so-called "Crony Capitalism"<ref>[http://mises.org/daily/6540/The-American-Economy-is-Not-a-FreeMarket-Economy Crony Capitalism in America]</ref><ref>[http://www.zerohedge.com/news/2013-02-10/guest-post-note-fed-giving-banks-free-money-wont-make-us-hire-more-workers Note To Fed]</ref> will continue.<ref>[http://www.youtube.com/watch?v=zbQq33iTsrw Rigged bank rates]</ref> This means superficial respect for property rights but periodic confiscation when deemed necessary by a government-banker cabal who consider themselves above [[natural law]].<ref>[http://www.zerohedge.com/news/2013-09-18/why-obama-allowed-bailouts-without-indictments Why Obama Allowed Bailouts]</ref> This implies ongoing "immunity" for market manipulating banks on the basis that they are "too big to jail",<ref>[http://moneymorning.com/2012/12/28/too-big-to-jail-its-a-dark-day-for-the-rule-of-law/ Too Big To Jail]</ref><ref>[http://www.rollingstone.com/politics/news/gangster-bankers-too-big-to-jail-20130214 Gangser Bankers: Too Big to Jail], Matt Taibbi. Extract: 'At HSBC, the bank did more than avert its eyes to a few shady transactions. It repeatedly defied government orders as it made a conscious, years-long effort to completely stop discriminating between illegitimate and legitimate money. And when it somehow talked the U.S. government into crafting a settlement over these offenses with the lunatic aim of preserving the bank's license, it succeeded, finally, in making crime mainstream. UBS, meanwhile, was a similarly elemental case, in which the offenses didn't just violate the letter of the law – they threatened the integrity of the competitive system. If you're going to let hundreds of boozed-up bankers spend every morning sending goofball e-mails to each other, giving each other superhero nicknames while they rigged the cost of money (spelling-challenged UBS traders dubbed themselves, among other things, "captain caos," the "three muscateers" and "Superman"), you might as well give up on capitalism entirely and just declare the 16 biggest banks in the world the International Bureau of Prices. Thus, in the space of just a few weeks, regulators in Britain and America teamed up to declare near-total surrender to both crime and monopoly. This was more than a couple of cases of letting rich guys walk. These were major policy decisions that will reverberate for the next generation. Even worse than the actual settlements was the explanation Breuer offered for them. "In the world today of large institutions, where much of the financial world is based on confidence," he said, "a right resolution is to ensure that counter-parties don't flee an institution, that jobs are not lost, that there's not some world economic event that's disproportionate to the resolution we want." In other words, Breuer is saying the banks have us by the balls, that the social cost of putting their executives in jail might end up being larger than the cost of letting them get away with, well, anything. This is bullshit, and exactly the opposite of the truth, but it's what our current government believes. From JonBenet to O.J. to Robert Blake, Americans have long understood that the rich get good lawyers and get off, while the poor suck eggs and do time. But this is something different. This is the government admitting to being afraid to prosecute the very powerful – something it never did even in the heydays of Al Capone or Pablo Escobar, something it didn't do even with Richard Nixon. And when you admit that some people are too important to prosecute, it's just a few short steps to the obvious corollary – that everybody else is unimportant enough to jail. An arrestable class and an unarrestable class. We always suspected it, now it's admitted.'</ref> and the continued collusion of central banks with private banks to manipulate an increasing number of financial and commodity markets in a futile effort to control capitalism for their own survival, eventually destroying any semblance of functioning capitalism resulting in an increasingly volatile financial system.<ref>[http://www.zerohedge.com/news/2013-04-26/illuminati-were-amateurs-matt-taibbi-explains-how-everything-rigged The Illuminati Were Amateurs], Matt Taibbi. Extract: "Conspiracy theorists of the world, believers in the hidden hands of the Rothschilds and the Masons and the Illuminati, we skeptics owe you an apology. You were right. The players may be a little different, but your basic premise is correct: The world is a rigged game. We found this out in recent months, when a series of related corruption stories spilled out of the financial sector, suggesting the world's largest banks may be fixing the prices of, well, just about everything."</ref><ref>[http://www.youtube.com/watch?v=zbQq33iTsrw Rigged bank rates]</ref> Some believe we have already reached this point where world financial markets are completely artificial and prices in many markets no longer reflect reality.<ref>[http://www.youtube.com/watch?v=zbQq33iTsrw Rigged bank rates]</ref><ref>[http://www.gata.org/node/7096 Fed's blueprint for market manipulation]</ref> Even former Fed officials now admit QE simply involves newly created money being gifted to large Wall Street banks at the expense of the general population.<ref>[http://www.zerohedge.com/news/2013-11-12/former-fed-quantitative-easer-confesses-aplogizes-i-can-only-say-im-sorry-America I am sorry America]. Quote: 'In its almost 100-year history, the Fed had never bought one mortgage bond. Now my program was buying so many each day through active, unscripted trading that we constantly risked driving bond prices too high and crashing global confidence in key financial markets. We were working feverishly to preserve the impression that the Fed knew what it was doing... Trading for the first round of QE ended on March 31, 2010. The final results confirmed that, while there had been only trivial relief for Main Street, the U.S. central bank's bond purchases had been an absolute coup for Wall Street. The banks hadn't just benefited from the lower cost of making loans. They'd also enjoyed huge capital gains on the rising values of their securities holdings and fat commissions from brokering most of the Fed's QE transactions. Wall Street had experienced its most profitable year ever in 2009, and 2010 was starting off in much the same way. You'd think the Fed would have finally stopped to question the wisdom of QE. Think again. Only a few months later—after a 14% drop in the U.S. stock market and renewed weakening in the banking sector—the Fed announced a new round of bond buying: QE2. Germany's finance minister, Wolfgang Schäuble, immediately called the decision "clueless." That was when I realized the Fed had lost any remaining ability to think independently from Wall Street. Demoralized, I returned to the private sector. Where are we today? The Fed keeps buying roughly $85 billion in bonds a month, chronically delaying so much as a minor QE taper. Over five years, its bond purchases have come to more than $4 trillion. Amazingly, in a supposedly free-market nation, QE has become the largest financial-markets intervention by any government in world history.'</ref> Ongoing purchases of government bonds by central banks continue every month, keeping interest rates artificially low and allowing government spending to continue to expand, along with a volatile heavily indebted private economy.<ref>[http://www.youtube.com/watch?v=G1l7DY8kdz0 The Fed Unspun]</ref> If these "emergency" QE measures continue indefinitely this will eventually result in indefinite depression as markets are manipulated beyond the control even of the central banks, prohibiting market "clearing" and prohibiting the reallocation of resources away from the government and financial sectors.<ref>[http://prudentbear.com/index.php/guestcommentaryview?art_id=10742 Bernanke's Balance Sheet Ensures Disaster], Michael Pento</ref><ref>[http://www.zerohedge.com/news/2013-01-26/only-3-minutes-worth-listening-davos Interview with Iceland's President Olafur Ragnar Grimson]</ref><ref>[http://www.zerohedge.com/news/2013-02-06/guest-post-all-well All Is Well], Jim Quinn</ref><ref>[http://www.youtube.com/watch?v=zbQq33iTsrw Rigged bank rates]</ref> Recent events in Cyprus and Greece are an indication of what will happen in other countries should the current system continue - periodic financial crises and bank runs from capital controls on marginal economies resulting in impoverishment of the general populace.<ref>[http://www.marketoracle.co.uk/Article39809.html Greece vs Iceland]</ref><ref>[http://www.zerohedge.com/news/2013-03-22/ecb-set-fair-cypriot-standard-living-capital-controls Capital Controls]</ref> Without debt relief, "following the rules" of debt will mean that the government will have to steal simply to pay back creditors.<ref>[http://www.marketoracle.co.uk/Article39732.html Cyprus Wealth Confiscation Scheme]</ref> Ultimately, with a compliant populace, bankers and governments will periodically, without warning, "steal", "tax" or otherwise confiscate deposits, savings and wealth to keep the financial system alive, whilst continuing to try grow the money supply through fractional reserve banking.<ref>[http://www.zerohedge.com/news/2013-03-22/ecb-set-fair-cypriot-standard-living-capital-controls Capital Controls]</ref>
Without reform or revolution, this perverted Keynesian<ref>[http://mises.org/journals/fm/January2013.pdf Two Sides of the Same Debased Coin], Hunter Lewis</ref> "upside down" combination of "socialism for the rich and capitalism for the poor" will inevitably result in chronic cascading "supply" crises in commodity markets as price signals no longer "work" due to market manipulation and price "smoothing" stifling price rises that must occur for production of essential commodities to remain profitable, thereby ultimately resulting in actual supply and demand mismatches in many essential commodity markets (such as the gold and silver markets).<ref>[http://www.marketoracle.co.uk/Article38893.html Shock Year 2013]</ref><ref>[http://www.zerohedge.com/news/2013-02-09/guest-post-us-economy-now-dangerously-detached-reality US Economy Detached From Reality]</ref> This will ultimately produce a tiny (but massively wealthy) speculative banker class,<ref>[http://www.zerohedge.com/news/2013-04-03/david-stockman-keynesian-endgame The Keynesian Endgame], David Stockman</ref><ref>[http://www.zerohedge.com/news/2013-02-06/guest-post-all-well All Is Well], Jim Quinn</ref> a bloated and ineffective government sector, a private sector that mainly services lucrative government contracts (or is otherwise starved of capital and funding) and the complete destruction of the middle class, resulting in a steadily increasing disenfranchised, desperate, intergenerational underclass.<ref>[http://www.zerohedge.com/news/2013-06-17/rotting-decaying-and-bankrupt-%E2%80%93-if-you-want-see-future-america-just-look-Detroit America's Future is Detroit]</ref><ref>[http://www.zerohedge.com/news/2013-02-06/guest-post-all-well All Is Well], Jim Quinn</ref><ref>[http://www.globalresearch.ca/western-civilization-and-the-economic-crisis-the-impoverishment-of-the-middle-class/18386 Western Civilization and the Economic Crisis]</ref><ref>[http://www.youtube.com/watch?v=DVxyGxEcMqQ Max Keiser on the UK Economy]</ref><ref>[http://mises.org/journals/fm/January2013.pdf Two Sides of the Same Debased Coin], Hunter Lewis</ref><ref>[http://www.youtube.com/watch?v=zbQq33iTsrw Rigged bank rates]</ref><ref>[http://www.zerohedge.com/news/2013-04-03/david-stockman-keynesian-endgame The Keynesian Endgame], David Stockman</ref><ref>[http://www.marketoracle.co.uk/Article39449.html An Orwellian America], Gordon T Long</ref>

David Stockman has the following comments in relation to the current monetary system:<ref>[http://mises.org/daily/6397/The-Keynesian-Endgame The Keynesian Endgame]</ref>

<blockquote>Accordingly, the central banking branch of the state remains hostage to Wall Street speculators who threaten a hissy fit sell-off unless they are juiced again and again. Monetary policy has thus become an engine of reverse Robin Hood redistribution; it flails about implementing quasi-Keynesian demand–pumping theories that punish Main Street savers, workers, and businessmen while creating endless opportunities, as shown below, for speculative gain in the Wall Street casino.

At the same time, Keynesian economists of both parties urged prompt fiscal action, and the elected politicians obligingly piled on with budget-busting tax cuts and spending initiatives. The United States thus became fiscally ungovernable. Washington has been afraid to disturb a purported economic recovery that is not real or sustainable, and therefore has continued to borrow and spend to keep the macroeconomic “prints” inching upward. In the long run this will bury the nation in debt, but in the near term it has been sufficient to keep the stock averages rising and the harvest of speculative winnings flowing to the top 1 percent.

The breakdown of sound money has now finally generated a cruel endgame. The fiscal and central banking branches of the state have endlessly bludgeoned the free market, eviscerating its capacity to generate wealth and growth. This growing economic failure, in turn, generates political demands for state action to stimulate recovery and jobs.

But the machinery of the state has been hijacked by the various Keynesian doctrines of demand stimulus, tax cutting, and money printing. These are all variations of buy now and pay later—a dangerous maneuver when the state has run out of balance sheet runway in both its fiscal and monetary branches. Nevertheless, these futile stimulus actions are demanded and promoted by the crony capitalist lobbies which slipstream on whatever dispensations as can be mustered. At the end of the day, the state labors mightily, yet only produces recovery for the 1 percent.</blockquote>

Paul Krugman has criticized David Stockman's analysis of rising debt levels.<ref>[http://krugman.blogs.nytimes.com/2013/04/03/debt-and-david-stockman/ Debt and David Stockman]</ref> Others have criticized Paul Krugman's analysis.<ref>[http://lewrockwell.com/anderson/anderson362.html Should Government Try to Extend Booms Indefinitely?]</ref> Paul Krugman's argument (essentially) is that debt does not matter because we (mostly) owe it to ourselves, but he never advocates repudiation or cancellation of the debt on the same basis.

==Status under current systems==
Whatever their political leanings, nearly all [[monetary reform]]ers agree that the current financial and economic system imposed on the populace by governments worldwide, involving coercive legal tender laws,<ref>[http://lewrockwell.com/paul/paul766.html Legalize Currency Competition], Ron Paul</ref> the perpetuation of government-protected private banks (organizations legally permitted to engage in unlimited and inherently speculative fractional-reserve banking activities during boom times, with recourse to monopoly central banks - and in some cases corrupt governments<ref>[http://www.prudentbear.com/index.php/thebearslairview?art_id=10513 The Evils of Crony Capitalism], Martin Hutchinson</ref><ref>[http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100008812/irelands-debt-servitude/ Ireland's Debt Servitude], Ambrose Evans-Pritchard, UK Telegraph</ref> - to provide bail outs of fiat money during downturns), "deregulated" labor markets (which have the effect of increasing the marketization and commodification of human activity), strictly enforced bankruptcy laws (which permit the periodic transfer of assets from failed bankrupt investors caught at the end of "Ponzi-scheme" cycles to the private banks and their associates) and personal income tax (which, combined with periodic economic collapses, dispossesses the majority of the populace from their accumulated income and wealth and transfers this wealth to the owners of illicit government bonds) amounts to an inherently unstable, unjust and dysfunctional financial system resulting in environmentally damaging over-consumption and massive worldwide [[malinvestment]]s,<ref>[http://www.mises.org/daily/6578/Central-Banks-The-True-Centers-of-Political-Power Central Banks]</ref> the systematic and irredeemable destruction of fertile arable land,<ref>[http://www.huffingtonpost.co.uk/2011/09/27/natural-resources-being-e_n_982576.html Natural Resources Being Exhausted]</ref> and the government-sponsored (and ultimately unsustainable) oppression of the indebted, impoverished and economically enslaved majority.<ref>[http://www.zerohedge.com/news/2013-02-06/guest-post-all-well All Is Well], Jim Quinn</ref><ref>[http://www.thenewamerican.com/economy/economics/item/14238-obama%E2%80%99s-trillion-dollar-coin-exposes-federal-reserve-scam Obama’s Trillion-Dollar Coin Exposes Federal Reserve Scam], Alex Newman, ''New American''</ref><ref>[http://mises.org/daily/4893 ''The Ethics of Money Production''], Jorg Guido Hulsmann</ref><ref>[http://www.youtube.com/watch?v=QIBFvikcl7g Stacy Herbert and Max Keiser: Flaming Banks] Max Keiser Quote: "Well, ''it's slavery''. You know, they had slavery, then they outlawed slavery but in its place were the Jim Crow laws: 'Coloreds Only. Whites Only.' Then the banks got involved and they have ''financial'' Jim Crow laws. If you're black and living in the ghetto, you are charged 40, 50, 60% to borrow money. If you're white and you work on Wall Street, you're charged ''negative'' 5% to borrow money. That's a ''financial'' Jim Crow law that goes down color lines. Now the big corporations who realize America's becoming a new ''plantation of slaves'' - they're saying, 'Forget it! We don't even make a pretense that there's a "middle class". Here's a product for those living on the plantation. And here's the product for the man livin' in the Big House!'"</ref><ref>[http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/3/25_Sinclair_-_Cyprus%2C_Gold%2C_Russia_%26_A_New_Monetary_System.html Jim Sinclair Interview]. Quote: "He [Paul Craig Roberts] spoke about the banks moving to enslave humanity, and he said the Cypriots had to do whatever it took to put a stop to this."</ref><ref>[http://www.marketoracle.co.uk/Article40103.html Americans Loving Their Servitude], James Quinn</ref>

==See also==
* [[Austrian Business Cycle Theory]]
* [[Central bank]]
* [[Monetary reform]]
* [[Murray Rothbard]]
* [[Ron Paul]]

==Notes==
{{reflist|4}}

==Links==
* [http://www.thefreemanonline.org/features/taking-money-back-part-i/ Taking Money Back: Part I] by [[Murray Rothbard|Murray N. Rothbard]], September 1995
* [http://www.thefreemanonline.org/features/fractional-reserve-banking-part-ii/ Fractional Reserve Banking: Part II] by Murray N. Rothbard, October 1995 (reprinted at [[LRC]] [http://www.lewrockwell.com/rothbard/rothbard239.html here])

*[http://econpapers.repec.org/paper/wpawuwpma/0203005.htm Fractional Reserve Banking as Economic Parasitism]
*[http://www.prosperityuk.com/prosperity/links/links.html Monetary Reform websites]
*[http://www.relfe.com/plus_5_.html I want the Earth Plus 5%]
*[http://www.youtube.com/watch?v=JUFxsZF5E48&list=LLG5bLlG3NQ8sHur0Oco-CmQ&feature=mh_lolz How Our Monetary System Works and Fails]
*[http://www.youtube.com/watch?v=jqvKjsIxT_8 Money As Debt (videoplay animation)]
*[http://www.youtube.com/watch?v=swkq2E8mswI&feature=like-suggest&list=UL The Secret of Oz (documentary video)]
*[http://dailyreckoning.com/ Daily Reckoning]
*[http://jsmineset.com/ Jim Sinclair's MineSet]
*[http://www.lewrockwell.com/ LewRockwell.com]
*[http://www.marketoracle.co.uk/ Market Oracle]
*[http://maxkeiser.com/ Max Keiser]
*[http://globaleconomicanalysis.blogspot.com/ MISH]
*[http://www.prudentbear.com/ PrudentBear.com]
*[http://www.youtube.com/watch?v=Bx5Sc3vWefE 12 Year Old Victoria Grant's Speech]
*[http://www.webofdebt.com/ Web of Debt]
*[http://www.zerohedge.com/ Zero Hedge]

{{DEFAULTSORT:Criticism Of Fractional-Reserve Banking}}
[[Category:Argumentation]]
[[Category:Money]]

Criticism of fractional reserve banking

2014-01-25T04:28:25Z

Karmaisking: /* Potential solutions */

{{main|Fractional-reserve banking}}
'''Criticisms of [[fractional reserve banking]]''' and [[central bank|central banking]] have been put forward from a variety of perspectives, although the most vigorous and sustained criticism now comes from libertarians and anarcho-capitalists such as economists [[Jesús Huerta de Soto]] and [[Jörg Guido Hülsmann]], American politician [[Ron Paul]], and commentators such as historian Thomas Woods, Jim Grant of ''Grant's Interest Rate Observer'' and former US Budget Director David Stockman.<ref>[http://www.philippbagus.com/archivos/Working%20paper%20deposits%20loans%20and%20banking%20bagus%20howden%20block.pdf Deposits, Loans and Banking: Clarifying the Debate], Philipp Bagus, David Howden and Walter Block</ref><ref>[http://blog.mises.org/16521/fantastic-speech-by-de-soto/ Jesús Huerta de Soto Speech]</ref><ref>[http://mises.org/daily/5174/Life-with-the-Fed-Sunshine-and-Lollipops Life with the Fed], Thomas Woods</ref><ref>[http://mises.org/daily/5146/Over-to-You-H-Parker-Willis Over to you H Parker Willis], Jim Grant</ref><ref>[http://www.youtube.com/watch?v=1VcN_Z6L0jM&feature=player_embedded#at=609 James Grant Interview with James Turk]</ref><ref>[http://mises.org/daily/5113/The-End-of-Sound-Money-and-the-Triumph-of-Crony-Capitalism The End of Sound Money and the Triumph of Crony Capitalism], David Stockman, Henry Hazlitt Memorial Lecture, Austrian Scholar's Conference</ref><ref>[http://www.lewrockwell.com/orig11/stockman6.1.1.html Crony Capitalism Strikes Again], David Stockman</ref><ref>[http://www.lewrockwell.com/orig11/stockman6.1.1.html David Stockman Interview - Blame the Fed]</ref><ref>[http://www.zerohedge.com/news/2013-04-03/david-stockman-keynesian-endgame The Keynesian Endgame], David Stockman</ref><ref>[http://www.lewrockwell.com/2013/10/david-stockman/its-sundown-in-america/ Sundown in America], David Stockman</ref><ref>[http://www.lewrockwell.com/rockwell/imperative-sound-money.html The Social Imperative of Sound Money], Lew Rockwell</ref><ref>[http://lewrockwell.com/stockman/stockman16.1.html The Forgotten Cause of Sound Money]</ref><ref>[http://mises.org/daily/6397/The-Keynesian-Endgame The Keynesian Endgame]</ref> Most in the mainstream (both on the left and right) remain silent on the issue of fractional reserve banking and central banking,<ref>[http://www.lewrockwell.com/lewrockwell-show/2008/10/31/58-americas-slow-motion-fascist-coup/ Naomi Wolf Interview with Lew Rockwell], Lew Rockwell: "I've frankly never understood why people on the Left are ''not'' upset about the Federal Reserve. If you look back to the history..." Wolf: "We probably don't understand it!" Lew Rockwell:"...but you know the founding of the Fed before the law was, you know, with bipartisan support signed in 1913, the Federal Reserve Act was drafted at J.P. Morgan's private club - it's sounds like a conspiracy story, but I guess it sort of is - on Jekyll Island Georgia...Big bankers wrote the Federal Reserve Act for their benefit!"</ref><ref>[http://www.lewrockwell.com/rockwell/imperative-sound-money.html The Social Imperative of Sound Money], Lew Rockwell: "I find it sickening that there are so few voices outside the Austrian School that will stand up to this policy [of fiat money, fractional reserve banking and central banking]."</ref> although past critics have included mainstream economists such as Irving Fisher,<ref>''100% Money'', Irving Fisher</ref><ref>[http://en.wikipedia.org/wiki/A_Program_for_Monetary_Reform ''A Program for Monetary Reform'']</ref> and [[Milton Friedman]].<ref>Friedman, M., A Program for Monetary Stability, New York, Fordham University Press, 1960, pp. 65</ref><ref>[http://mises.org/daily/3108 The Social Imperative of Sound Money], Lew Rockwell: "I find it sickening that there are so few voices outside the [[Austrian School]] that will stand up to this policy (of [[fiat money]]/[[fractional reserve banking]]/[[central bank]]ing)".</ref> Within the economics profession, most criticisms are from the [[Austrian School]].<ref>[http://mises.ca/posts/blog/illogic-in-fractional-reserve-banking/ Illogic in Fractional Reserve Banking], James E. Miller</ref><ref>[http://mises.org/media/4014 The Economics of Legal Tender Laws], [[Jorg Guido Hulsmann]] (includes detailed commentary on [[fractional reserve banking|FRB]])</ref><ref>[http://mises.org/store/Money-Bank-Credit-and-Economic-Cycles-P290C0.aspx Money, Bank Credit and Economic Cycles], Jesus Huerta de Soto, Mises Institute ISBN: 978-1-933550-39-8</ref><ref>[http://mises.org/store/Meltdown-P557.aspx ''Meltdown''], Tom Woods, Regnery Press ISBN: 9781596985872</ref><ref>[http://www.marketoracle.co.uk/Article25212.html The Faults of FRB], Thorsten Polleit</ref> There are also critics from outside the economics profession who advocate [[monetary reform]].<ref>[http://www.nakedcapitalism.com/2010/12/matt-stoller-end-this-fed.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capitalism%29 End This Fed], Matt Stoller</ref><ref>For an example of the writings of these groups, see [http://www.bilderberg.org/monref.htm this] contribution from Bilderberg.org</ref><ref>[http://www.youtube.com/watch?v=VMngK0t5WkY Max Keiser]</ref><ref>[http://www.marketoracle.co.uk/Article28533.html The Global Debt Crisis], Ellen Hodgson Brown</ref><ref>[http://www.mises.org/daily/6358/The-Backroom-World-of-Central-Banking Lords of Finance]</ref>

==Terminology==

Critics of fractional reserve banking and the related fiat paper monetary system may refer to it by the term '''debt-based monetary system''',<ref>[http://www.thenewamerican.com/economy/economics/item/14238-obama%E2%80%99s-trillion-dollar-coin-exposes-federal-reserve-scam Obama’s Trillion-Dollar Coin Exposes Federal Reserve Scam], Alex Newman, ''New American''</ref><ref>[http://mises.org/daily/4631 Is Our Money Based On Debt?], Robert Murphy</ref><ref name="speech">For an example of the public use of the term, see the [http://www.prosperityuk.com/prosperity/articles/earl.html speech] of the Earl of Caithness in the House of Lords on 5 March 1997</ref> or '''credit-based monetary system'''.<ref>For example of the public use of the term, see this speech given by [[Zhou Xiaochuan]], [http://www.bis.org/review/r090402c.pdf Reform the monetary system], 23 March 2009 (BIS), and this article, [http://www.nakedcapitalism.com/2009/02/steve-keen-roving-cavaliers-of-credit.html ''Roving Cavaliers of Credit''] by Steve Keen (with commentary by Yves Smith)</ref><ref>[http://globaleconomicanalysis.blogspot.com/2010/09/myths-about-whats-economically.html Myths], MISH</ref><ref>[http://globaleconomicanalysis.blogspot.com/2010/07/are-we-trending-towards-deflation-or-in.html Deflation], MISH</ref><ref>[http://globaleconomicanalysis.blogspot.com/2008/04/deflation-in-fiat-regime.html Deflation In A Fiat Regime?], MISH</ref> They may also refer to money created in parallel with debt as '''debt money''' or '''endogenous money''', reflecting the fact that virtually all new money is currently created by people or businesses or governments further indebting themselves to banks.<ref name="death"/><ref>[http://www.debunkingeconomics.com/Papers/Money/KeenModellingEndogenousMoneyICAPE.pdf Endogenous Money], Steve Keen</ref> This monetary system is called "endogenous" because the money supply is flexible, expanding in parallel with the demand for debt and stalling or contracting when demand for debt declines.<ref>[http://www.debunkingeconomics.com/Papers/Money/KeenModellingEndogenousMoneyICAPE.pdf Endogenous Money], Steve Keen</ref> Some consider this a perverse and dysfunctional way of introducing new money into the economy.<ref name="death"/>

The term, "debt-based monetary system," and related terms such as "debt money" are not used by conventional economists. Mainstream economists often refer to "debt money" by its antonym "credit" and distinguish between types of money only ''after'' the money is created. The very definition of "money" and the distinction between "debt" and "money" (and their respective economic effects) are still sources of vigorous ongoing debate.<ref>[http://www.youtube.com/watch?v=s8HnN8Htr1M David Graeber's Interview with Max Keiser]</ref><ref>[http://lewrockwell.com/wile/wile25.1.html Daily Bell Interview: Dr. Joseph Salerno]</ref><ref>[http://mises.org/daily/5052/Deflation-Confusion-Money-Is-Not-Credit Money Is Not Credit], Robert Blumen</ref><ref>[http://globaleconomicanalysis.blogspot.com/2009/02/fiat-world-mathematical-model.html Fiat World], MISH</ref><ref>[http://globaleconomicanalysis.blogspot.com/2010/09/myths-about-whats-economically.html What's Economically Important], MISH</ref> Mainstream economists rarely if ever discuss the origins of modern money and generally do not actively discuss or comment on the fact that virtually all money is now created through individuals, or businesses, or governments going into debt to government-sponsored commercial banks.<ref>[http://mises.org/daily/3108 The Social Imperative of Sound Money], Lew Rockwell</ref><ref>For an example of the mainstream use of the term "credit" instead of "debt-money" see [http://www.ft.com/cms/s/bdfa429e-17a2-11dd-b98a-0000779fd2ac,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2Fbdfa429e-17a2-11dd-b98a-0000779fd2ac.html&_i_referer=http%3A%2F%2Fwww.ft.com%2Fhome%2Fasia this] example from the Financial Times, 1 May 2008</ref> Discussion around the nature of "debt-based" money and the arguments over its effects on the economy are notably absent from most established mainstream academic economic publications<ref>Paul Krugman, writing at [http://www.slate.com/id/9593 Slate.com], stated that the Austrian theory of business cycles was "about as worthy of serious study as the phlogiston theory of fire".</ref> and most mainstream economists instead argue that the origin of different kinds of money (and the volume of their issuance) does not really matter, at least in the long run.<ref>[http://www.lewrockwell.com/wenzel/wenzel87.1.html Senior Fed Economist Calls Ron Paul a Pinhead]</ref> This mainstream idea is referred to as the theory of "money neutrality".<ref>[http://www.lewrockwell.com/wenzel/wenzel87.1.html Senior Fed Economist Calls Ron Paul a Pinhead]</ref><ref>[http://mises.org/daily/5172/Is-Inflation-Harmless-or-Even-Good Is Inflation Harmless or Even Good?], Robert Murphy</ref><ref>[http://libertarianpapers.org/articles/2011/lp-3-14.pdf Free Banking and the Structure of Production], Dan Mahoney</ref> Some commentators have speculated that the unusual "silence" around the topics of fractional reserve banking and central banking and the staunch refusal to consider alternative theories of money can be attributed to the simple fact that many economists are on the payroll of the major commerical or central banks of the world and are beholden to those banks for their livelihood.<ref>[http://www.safehaven.com/article/15068/economists-opposing-fed-audit-are-on-fed-payroll Economists on Fed Payroll], MISH</ref><ref>[http://www.huffingtonpost.com/2009/09/07/priceless-how-the-federal_n_278805.html Priceless], Ryan Grim, Huffington Post</ref><ref>[http://www.marketoracle.co.uk/Article26581.html Ten Reasons The Banksters Got Away With It], Danny Schechter</ref><ref>[http://www.youtube.com/watch?v=FxtCn2GyqKc&feature=related Corruption in Academic Economics], Charles Ferguson</ref><ref>[http://www.marketoracle.co.uk/Article27805.html Currency Dead End Paradox], Jim Willie CB</ref> Those economists who "dare" to speak about such topics are simply not employed by the banks, by government-sponsored universities or by international financial institutions and are not published in mainstream economic publications and, therefore, their views are not widely disseminated to the general public who are generally taught by government-sponsored teachers and receive their news from the mainstream media.<ref>[http://www.huffingtonpost.com/2009/09/07/priceless-how-the-federal_n_278805.html Priceless], Ryan Grim, Huffington Post</ref><ref>[http://www.marketoracle.co.uk/Article26581.html Ten Reasons The Banksters Got Away With It], Danny Schechter</ref><ref>[http://www.youtube.com/watch?v=FxtCn2GyqKc&feature=related Corruption in Academic Economics], Charles Ferguson</ref><ref>[http://www.wsws.org/en/articles/2013/01/29/keen-j29.html UWS victimises Professor Steve Keen]</ref><ref>[http://www.zerohedge.com/news/2013-05-02/guest-post-nicholas-taleb-against-establishment-economists Establishment Economists]</ref>

== Typical criticisms ==

Founder of the so-called "New Austrian School", Professor Antal E. Fekete, has stated the following in relation to the current monetary system:<ref>[http://www.professorfekete.com/articles/AEFTheSilverSaga.pdf The Silver Saga]</ref>

{{quote|The world economy, sagging as it is under the weight of its debt tower and fast depreciating irredeemable currencies, is clearly on its way to self-destruction. The forcible elimination of, first, silver and then a hundred years later of gold, from the monetary system removed the only ultimate extinguishers of debt we have. In consequence, total debt can only grow, never contract. The process is hidden since the unpaid and unpayable debt is accumulating as sovereign debt of governments. The world is deluding itself that sovereign debt can increase indefinitely as governments can extend its maturity indefinitely. In 2008 we had the wake-up call that it cannot. Unless we stop the proliferation of debt, the world is facing prolonged deflation, depression, continuing capital destruction, bankruptcies and unprecedented unemployment. It is leading to a breakdown of law and order. It could spell the end of our civilization.}}

In August 2004, four years ''before'' the Global Financial Crisis of September 2008 and the ongoing financial crises in Europe and elsewhere, Austrian commentator Robert K. Landis stated the following:<ref>[http://www.goldensextant.com/SavingtheSystem.html Saving the System]</ref>

{{quote|No, the die is cast: we shall have the catastrophe. Our fiat monetary system got a reprieve in the 1980's, not a deliverance. All that has happened since, with the fantastic mispricing of credit the Greenspan Fed has engineered, and the massive global malinvestment this has engendered, is that the dimensions of the unraveling have become more dire.

Mises called this one too: "Certainly, the banks would be able to postpone the collapse; but nevertheless, as has been shown, the moment must eventually come when no further extension of the circulation of fiduciary media is possible. Then the catastrophe occurs, and its consequences are the worse and the reaction against the bull tendency of the market the stronger, the longer the period during which the rate of interest on loans has been below the natural rate of interest and the greater the extent to which roundabout processes of production that are not justified by the state of the capital market have been adopted."

With respect to the form the denouement will take, much has been written within the gold community on the subject of whether we face hyperinflation or deflationary depression as the prelude to monetary collapse. Both sides of the debate appear to accept the premise that whatever may transpire will bear a linear relationship to what now exists. The disagreement centers on the direction the line will go. But today's markets are fully linked by derivatives and technology, and they are patrolled by wolf packs of large, leveraged speculators not noted for their patient outlook. So it seems likely that the terminal monetary crisis will unfold on virtually an instantaneous and discontinuous basis, once the fog of statistical deceit and false market cues begins to lift and a clear trend either way becomes evident. We are not likely to enjoy the luxury of observing either a deflation or an inflation unfold in the fullness of time, but rather, just as Mises foretold, a final and total catastrophe of our fiat monetary system.}}

Financial commentator Jim Willie has written the following regarding the current fiat money system:<ref>[http://www.marketoracle.co.uk/Article39362.html Raging Gold Bull]</ref>

{{quote|The West cannot solve its problems, hardly properly described as a financial crisis anymore, under the current framework bound to the fiat paper currencies. The global monetary war is heating up notably. The heavy liquidity has caused unfixable distortions in every conceivable bond market niche. The new and better debt devices have been exposed for their shams. The leading central bankers lost their credibility long ago. The weakness is as broad as it is deep, a reliance upon paper wealth and paper structures and paper contracts, during a time of zero bound interest rates and unfettered hyper monetary inflation to cover the debts. Almost no foreign USTreasury Bond buyers exist anymore. The US has become Weimar Amerika, a fascist enclave.}}

On 5 March 1997, in a speech in the House of Lords in London England, the Earl of Cathiness made the following observations:<ref>[http://prosperityuk.com/2001/06/our-debt-based-money-system-will-break-us/ Our debt-based monetary system will break us], Earl of Cathiness, House of Lords, Wednesday, 5 March, 1997, Hansard, Vol. 578, No. 68, columns 1869-1871</ref><ref>See also the additional House of Lords speeches contained [http://earthlinggb.wordpress.com/2011/04/06/british-house-of-lords-stunning-speeches/ here]</ref>

{{quote|...it is also a good time to stand back, to reassess whether our economy is soundly based. I would contest that it is not, not for the reason to which the noble Lord, Lord Eatwell, alluded, which is that it is the Government’s fault, but our whole monetary system is utterly dishonest, as it is debt-based. “Dishonest” is a strong word, but a system which by its very actions causes the value of money to decrease is dishonest and has within it its own seeds of destruction. We did not vote for it. It grew upon us gradually but markedly since 1971 when the commodity-based system was abandoned.

Let us look at what has happened since then. The money supply in 1971 was just under £31 billion. At the end of the third quarter of last year, it was about £665 billion. In 25 years it has grown by a staggering 2,145 per cent. Where has the money come from? Interestingly, the Government have only minted a further £20 billion in that time. It is the banks, the building societies and our commercial lenders who have created the balance of £614 billion. If this rate of growth is projected over the next 25 years, the money supply in 2022 will be over £14,000 billion.

All that new money bears interest paid either by us as individuals, by companies or by the Government. Today the Government pay over £30 billion annually in interest charges — coincidentally about the same as the total money supply only 25 years ago. Governments since then have abdicated their responsibility for producing new money and controlling the money supply so that now they are marginalised. In 1971 government notes and coins accounted for 14 per cent of the money supply. Now it is only about 3.5 per cent. “So what?”, noble Lords might ask.

The problem is that it is commercial lending that has boosted the money supply, thus increasing debt and, as sure as night follows day, inflation follows growth in money supply of this sort...

Conventional wisdom tells us that in order to create new jobs and boost the economy, interest rates have to be reduced. That has happened. People are encouraged to borrow to invest and spend. That has happened. As the continuing flow of new money finds its way into the economy, inflation will follow and up will go interest charges again to reduce the level of borrowing. In order to pay the increasing levels of interest, borrowers will once more have to reduce expenditure in other areas of economic activity. The cycle will continue, but the next time, as before, we will all start deeper in debt and with a burden harder to carry. Personal debt has already increased by nearly 3,000 per cent since 1971. How much more can we take? I hope, for the sake of our economy, without which we cannot finance what we want to see — a good health service and a good social security system among other things — we will question this conventional wisdom.

We all want our businesses to succeed, but under the existing system the irony is that the better our banks, building societies and lending institutions do, the more debt is created. The noble Lord, Lord Kingsdown, said that there is little that can be done about debt. No, I do not believe that. There is a different way: it is an equity-based system and one in which those businesses can play a responsible role. The next government must grasp the nettle, accept their responsibility for controlling the money supply and change from our debt-based monetary system. My Lords, will they? If they do not, our monetary system will break us and the sorry legacy we are already leaving our children will be a disaster.}}

On 4 November 1999, Lord Sudeley stated in the House of Lords:

{{quote|The only way in particular to stop inflation is to stop banks from creating credit. The supply of money should be removed from banks and should be assumed by governments, who should issue it on a debt-free basis. Such a view is supported by five disparate quarters: the noble Lord, Lord Beswick, in the debate which he introduced to this House in 1985, Disraeli, the Vatican under Pope Pius XI in his Encyclical Quadragesimo Anno in 1931, the Tsars of Russia in the last century, who prevented the setting up of a privately owned central bank, and, above all, Abraham Lincoln, who said that governments should create, issue, and circulate all currency and credits needed to satisfy the spending power of governments and the buying power of consumers.

By adopting those principles, the taxpayer would be saved immense sums of interest. Lincoln’s greenbacks were generally popular, and their existence let the genie out of the bottle with the public becoming accustomed to government-issued, debt-free money. The year after Lincoln’s assassination, Congress set to work at the bidding of the European central banking interests to retire the greenbacks from circulation and to ensure the reinstitution of a privately owned central bank under the usurers’ control.

During the history of the United States, the money power has gone back and forth between Congress and some privately owned central bank. The American people fought off four privately owned central banks before succumbing to a fifth privately owned central bank, at that time essential, owing to the period of weakness during the Civil War.

The founding fathers of the United States knew the evils of a privately owned central bank. They had seen how the Bank of England ran up the British national debt to such an extent that Parliament was forced to place unfair taxes on the American colonies, leading to their loss following, the American Revolution.

I now conclude. Once the fundamental decision is taken to prevent sterling from being debt-based, the Commonwealth could act as the right monetary union to use sterling debt-free as a genuine alternative to the dollar and the euro.}}

Norm Franz states in his ''Money and Wealth in the New Millennium'':<ref>[http://www.amazon.com/Money-Wealth-Millennium-Norm-Franz/dp/0971086303 ''Money and Wealth in the New Millennium''], Norm Franz</ref>

{{quote|Gold is the money of kings, silver is the money of gentlemen, barter is the money of peasants – but debt is the money of slaves.}}

12th century Chinese scholar Hu Zhiyu stated:<ref>Ralph T. Foster, ''Fiat Paper Money, The History and Evolution of Our Currency'', page 19</ref>

{{quote|Paper money, the child, is dependent on precious metals, the mother. [Inconvertible paper notes are therefore] orphans who lost their mother in childbirth.}}

Robert H. Hemphill, credit manager of the Federal Reserve in Atlanta, stated in 1939:<ref>Preface to ''100% Money'', Irving Fisher. Note: This quote has not been traced to the primary source. See for example [http://www.webofdebt.com/excerpts/introduction.php Web of Debt] and [http://www.lewrockwell.com/north/north908.html Gary North's critique of the book and its sources]</ref>

{{quote|If all the bank loans were paid, no one would have a bank deposit and there would not be a dollar of coin or currency in circulation. This is a staggering thought. Someone has to borrow every dollar we have in circulation, cash or credit. If the banks create ample synthetic money we are prosperous; if not, we starve. When one gets a complete grasp of the picture the tragic absurdity of our hopeless position is almost incredible, but there it is. It (the banking problem) is the most important subject intelligent persons can investigate and reflect upon. It is so important that our present civilization may collapse unless it becomes widely understood and the defects remedied very soon.}}

British monetary reformer Michael Rowbotham states the following in his book, ''The Grip of Death'' (the title being derived from the literal origin of the word "mortgage"):<ref name="death">{{cite book |last= Rowbotham |first= Michael |title= The Grip of Death: A Study of Modern Money, Debt Slavery and Destructive Economics | year= 1998 |publisher= Jon Carpenter Publishing |isbn= 9781897766408 }}</ref>

{{quote|It is actually not in the least surprising that nations are chronically in debt, governments have inadequate resources, public services are under-funded and people are beset by mortgages and overdrafts. The reason for all this monetary scarcity and insolvency is that the financial system used by all national economies worldwide is actually founded upon debt. To be direct and precise, modern money is created in parallel with debt. The reason for the failure of economists to question patently invalid monetary data becomes clear - there is a total acceptance by them of the most extraordinary method for supplying money to the modern economy.

The creation and supply of money is now left almost entirely to banks and other lending institutions. Most people imagine that if they borrow from a bank, they are borrowing other people's money. In fact, when banks and building societies make any loan, they create new money. Money loaned by a bank is not a loan of pre-existent money; money loaned by a bank is additional money created. The stream of money generated by people, businesses and governments constantly borrowing from banks and other lending institutions is relied upon to supply the economy as a whole. Thus the supply of money depends upon people going into debt, and the level of debt within an economy is no more than a measure of the amount of money that has been created...

All around us, the gross failure of modern economics screams out to be addressed. The towering indifference of those shining offices scraping the sky above the menacing ghettos of Brooklyn; the speculative channelling of billions of pounds of volatile international finance, which can leave a country prosperous one week and plunged into decline the next; the ludicrous production of cheap goods of poor durability, so that jobs are 'protected', and we can recycle the materials and make the goods all over again; the ridiculous export drives by which every country simultaneously attacks the economies of every other nation, under the pretence that such global free trade improves the general wellbeing; the staggering waste of a throwaway, quick-growth, all-new spiral of constant economic change; the outrageous financial debt which Third World countries have actually paid many times over, but which, due to interest, is now larger than ever before - a debt which forces those impoverished nations to compete to supply goods already in surplus; the cynical manipulation of human emotions into buying fashion-obsessed trivia; the burgeoning transport demands of escalating economic growth and centralisation, with identical goods crisscrossing the globe, regardless of environmental cost; the fact that despite the incredible productive capacity of the modern economy, people are obliged to work harder, with ever greater efficiency, forever forced to adapt and retrain or face a life of indignity and misery as one of the unemployed.

Both those in work and out must watch, as the world they know and understand changes almost in front of their eyes like some nightmarish Kafka-esque novel. This is the era of accelerating economic change. The benefits are highly dubious, and no-one even pretends that the economy is responding to what people actually want. The only justification offered for the changes is that this is 'the age of progress', and 'you can't stop progress', even if you are human and the progress you are discussing is supposed to be about people and the lives they might lead in the future. The world of economics has got mankind by the throat and everyone knows it, and no-one has a clue where we are going or why we are going there.

But is this surprising? If a monetary system is invalid or flawed, then the entire economy is based on the mathematics of error, and must be riddled with the effects. If the financial system upon which our economies are built is defective, and yet monetary considerations dominate our economic decisions, should we be surprised if the results are less than satisfactory?

The major role played by bank credit, which forms over 95% of the money stock in most developed nations, suggests that it cannot but be implicated in these trends. This is further suggested by the way that banking has literally become the focal point of modern economic management, through manipulating interest rates. The stargazers of Whitehall and the Federal Reserve hold their councils, trying to tread the non-existent tightrope between growth and recession by debating quarter percentage-points of interest rates. Alan Greenspan, the Chairman of the Federal Reserve, engagingly describes his task in controlling the American economy through adjusting interest rates as a matter of 'taking the champagne away once the party has started'. Businessmen around the world hold their breath, measuring his every word, wondering what he will decide. There could be no greater indictment of contemporary financial economics than this; that a fluctuating financial digit on a single computer system in a single street in a single country should have the ability to dominate the economies of an entire planet...

The past thirty years are almost unique by comparison with the previous three centuries in the lack of attention that has been directed at debt and the financial system. Throughout the eighteenth century, there were repeated calls for reform. During the nineteenth century, excessive banking was held by many to be directly responsible for the waves of appalling poverty that swept Europe and America during a period of increasing industrialisation and agricultural development. In this century, during the depression of the 1930s, the financial system effectively seized up and brought virtual collapse to the economies of the world in an age which was, perhaps for the first time, obviously wealthy, and in which technology offered people real freedom as well as material prosperity. One observer judged that over 2,000 schemes for monetary reform were put forward at that time - all with a common theme in their outright rejection of the debt-based financial system as it then operated. The same system continues to this day, modified in small details, but unchanged in principle; and the recent financial crisis in Asia shows the potential for collapse still exists.

However the issue of economic volatility through booms, slumps, crises, and collapses has never been the sole point of criticism. It is the long-term trends that a debt-based financial system fosters which are most destructive. The most obvious of these is declining personal solvency. Mortgages support over 60% (£420 billion) of the money stock in the UK and over 70% ($4.2 trillion) in the US. Housing-debt statistics for the UK and the US show that there has been a dramatic decline in true home ownership as mortgages become higher and ever more widespread. There can be little question that relying upon housing debt to supply money to an economy lacks economic and political justification. However, taken in conjunction with the marked rise in commercial debt, mortgages have a knock-on effect. In an economy where the price of goods is elevated by commercial debt and consumer incomes are deeply eroded by mortgage debt, there is a persistent and subtle advantage given to low-quality, mass-produced goods, and growth is fostered in this direction. The persistent decline in product durability and the growth-culture of a rapacious consumer society can be directly traced to the debt-based financial system.

The financial system has also generated a serious distortion of agriculture. Excessive farming debt has driven out the most efficient producers - small/medium sized farms. Meanwhile, the relentless pursuit of farming and processing methods oriented towards a low-price market now involves the production of foodstuffs of poor nutritional value, inferior to that which the land can provide and inferior to that which consumers actually desire.

The nature of growth within a debt economy affects not only the quality of output, but distribution and marketing. Intense competition for sales within a debt-based economy results in the use of transport as a competitive strategy by businesses. This has led to a progressive breakdown of local and regional supply networks, and marketing over ever-greater distances, leading to escalating commercial traffic demands.

At the international level, trade is deeply affected by the debt-based financial system. The aggressive pursuit of maximum export revenues, rather than seeking a simple balance of trade, is entirely due to the fact that even the wealthiest nations operate from a position of gross insolvency. International trade has degenerated into a competition between nations to alleviate their indebtedness, rather than a process involving a mutually beneficial exchange of goods and services.

Endemic Third World debt is also directly attributable to the reliance upon debt and banking to supply money. The theoretical model of borrowing from the World Bank/IMF, investing in development and repaying loans from export revenues, is one of the great failures of contemporary economics. The persistent inability on the part of debtor nations to repay these loans suggests strongly that the nature of the indebtedness suffered by the Third World has absolutely no actual legitimacy or validity...

The more one explores the broad impact of debt, the more apparent it becomes that bank-credit constitutes a dysfunctional form of money. An economy based almost entirely upon bank-credit and debt experiences an intense drive for growth, regardless of need or demand. Bank credit engenders financial dependence, injects instability and fosters growth-distortions, both within an economy and throughout the international arena.

Reform of the debt-based financial system is clearly not a minor issue. It is not a matter of fiddling around with taxes, incomes and allowances to make things apparently more equal, more efficient, or perhaps more straightforward. Changing the debt-based financial system involves gradually altering the very foundations upon which national and international economics is based. Monetary reform is concerned with attempting to determine a new principle for the supply of money to an economy - the purpose being to create a supportive financial environment in which more constructive economic trends are allowed to emerge, and in which more benign systems of overall economic management become possible. In view of the rapacious onslaught on the environment, the waste of natural resources and the social and political friction caused by de-regulated commerce and capital flows, this is at once a promising, but a sobering prospect.}}

Dr Chris Leithner states in his book ''The Evil Princes of Martin Place'':<ref>[http://economics.org.au/2011/04/the-banking-bubble-blow-by-blow/ The Evil Princes of Martin Place]</ref>

{{quote|The inflation that necessarily results from fractional reserve banking is a “tax” by which the early recipients of counterfeit money expropriate late recipients’ wealth. The tax is particularly insidious because it’s so well hidden. Few people — apparently including banksters and mainstream economists! — understand it (or, if they understand it, certainly don’t draw attention to it); and still less do they discuss its ethical and distributional implications. Obviously, it’s in insiders’ interest to distract outsiders’ attention from the source of the counterfeiting. It’s also in their interest to reverse the order of causality with respect to the cause and consequences of inflation, and thereby further to bamboozle the public. Accordingly, governments and mainstream economists don’t attribute the consequence (rising prices) to its single cause (inflation); instead, they brazenly and diametrically incorrectly insist that rising prices cause inflation! (p. 143)...

Gosplan, the Soviet Union’s central planning agency, set targets for the production of steel, cement and myriad other goods and services; Western central banks set targets for the Overnight Cash Rate and the Consumer Price Index. The chaotic consequences of central plans, Soviet and Western, necessarily reverberate throughout the economy … It’s quite comical: people who claim they “believe in the free market” blindly and unthinkingly affirm central banking and its relentless interventions into the market. Elementary logic completely escapes them: if you reject central planning in general, then you must also reject specific aspects like the central planning of money. If you abhor attempted price-fixing, then you must abhor the attempt to fix the Overnight Cash Rate. (pp. 254-55)...

[I]t is highly improbable that the combination of a pure gold standard and a 100% reserve for deposits has ever resulted in a prolonged rise of prices. The historical record is telling: in no year from 1492 to the present has the total supply of gold increased by more than 5%. (p. 552)}}

Ron Paul stated in his book ''End the Fed'':<ref name="Paul_End">Ron Paul. [http://mises.org/daily/3687 ''End the Fed''], ''Mises Institute'', September 03, 2009. Chapter 2 of the book ''End the Fed''. Referenced 2011-03-16.</ref>

{{quote|American presidents actually worked to implement and defend the gold standard, which put a brake on the ability of the largest banks to expand credit without limit. The gold standard worked like a regulator in this way. Ultimately, banks had to function like every other business. They could expand and make risky loans up to a point, but when faced with bankruptcy, they had nowhere they could turn. They would have to contract loans and deal with extreme financial pressures. Risk bearing is a wonderful mechanism for regulating human decision making. This created a culture of lending discipline.

In the jargon of the day, the system lacked "elasticity." That's another way of saying that banks couldn't expand money and credit as much as they wanted. They couldn't inflate without limit and count on a centralized institution to bail them out...

The banking industry has always had trouble with the idea of a free market that provides opportunities for both profits and losses. The first part, the industry likes. The second part is another issue. That is the reason for the constant drive in American history towards the centralization of money and banking, a trend that not only benefits the largest banks with the most to lose from a sound money system, but also the government, which is able to use an elastic system as an alternative form of revenue support. The coalition of government and big bankers provides the essential backbone of support for the centralization of money and credit...

Consider the Soviet case: to my knowledge, no business ever went under with the Soviet system but society in general grew ever poorer. Think of that Soviet system applied to the banking industry and you have the Fed.}}

He also wrote the following in March 2013:<ref>[http://lewrockwell.com/paul/paul854.html The Great Cyprus Bank Robbery]</ref>

<blockquote>Remember that under a fractional reserve banking system only a small percentage of deposits is kept on hand for dispersal to depositors. The rest of the money is loaned out. Not only are many of the loans made by these banks going bad, but the reserve requirement in Euro-system countries is only one percent! If just one euro out of every hundred is withdrawn from banks, the bank reserves would be completely exhausted and the whole system would collapse. Is it any wonder, then, that the EU fears a major bank run and has shipped billions of euros to Cyprus?

The elites in the EU and IMF failed to learn their lesson from the popular backlash to these tax proposals, and have openly talked about using Cyprus as a template for future bank bailouts. This raises the prospect of raids on bank accounts, pension funds, and any investments the government can get its hands on. In other words, no one's money is safe in any financial institution in Europe. Bank runs are now a certainty in future crises, as the people realize that they do not really own the money in their accounts. How long before bureaucrat and banker try that here?

Unfortunately, all of this is the predictable result of a fiat paper money system combined with fractional reserve banking. When governments and banks collude to monopolize the monetary system so that they can create money out of thin air, the result is a business cycle that wreaks havoc on the economy. Pyramiding more and more loans on top of a tiny base of money will create an economic house of cards just waiting to collapse. The situation in Cyprus should be both a lesson and a warning to the United States. We need to end the Federal Reserve, stay away from propping up the euro, and return to a sound monetary system.</blockquote>

In the foreward to ''Fiat Money Inflation in France'', Mr John McKay wrote the following:<ref>[http://mises.org/books/inflationinfrance.pdf ''Fiat Money Inflation in France''], Andrew Dickson White, 1912</ref>

{{quote|The story of "Fiat Money Inflation in France" is one of great interest to legislators, to economic students, and to all business and thinking men. It records the most gigantic attempt ever made in the history of the world by a government to create an inconvertible paper currency, and to maintain its circulation at various levels of value. It also records what is perhaps the greatest of all governmental efforts—with the possible exception of Diocletian's—to enact and enforce a legal limit of commodity prices. Every fetter that could hinder the will or thwart the wisdom of democracy had been shattered, and in consequence every device and expedient that untrammelled power and unrepressed optimism could conceive were brought to bear.

But the attempts failed. They left behind them a legacy of moral and material desolation and woe, from which one of the most intellectual and spirited races of Europe has suffered for a century and a quarter, and will continue to suffer until the end of time. There are limitations to the powers of governments and of peoples that inhere in the constitution of things, and that neither despotisms nor democracies can overcome.

Legislatures are as powerless to abrogate moral and economic laws as they are to abrogate physical laws. They cannot convert wrong into right nor divorce effect from cause, either by parliamentary majorities, or by unity of supporting public opinion. The penalties of such legislative folly will always be exacted by inexorable time. While these propositions may be regarded as mere commonplaces, and while they are acknowledged in a general way, they are in effect denied by many of the legislative experiments and the tendencies of public opinion of the present day. The story, therefore, of the colossal folly of France in the closing part of the eighteenth century and its terrible fruits, is full of instruction for all men who think upon the problems of our own time.}}

C.J. Maloney wrote of the desperation of Henry VIII of England to counterfeit gold by engaging charlatan-alchemists:<ref>[http://www.lewrockwell.com/maloney/maloney28.1.html The Desperation of King Henry VIII], C.J. Maloney</ref>

{{quote|Despite his formidable education and great historic reputation, the disastrous interventions into the economy, the lifelong dishonesty with the currency in his care and, most of all, his laughable attempts to bring a sorcerer into his court to conjure gold, mark the great King Henry VIII as a fool. Yet there is no reason, be warned, for anyone to feel superior to the King; one only needs to pick up a newspaper to see that though alchemy may be a dead science, it has merely taken up new forms.

This has always been and always will be, for its immortality is powered by economic man’s most dangerous, fondest wish, the one that will drive us to endless imbecilities and repeated destruction – the ardent desire to believe that you can get something for nothing. His adherence to that belief made King Henry VIII a man of his times – and ours.}}

In his treatise, ''The Ethics of Money Production'', which was published by the Mises Institute in October 2008, Jörg Guido Hülsmann presents (at pages 238-239) the following description of the perverse rise of fiat money and fractional reserve banking:

{{quote|There is no tenable economic, legal, moral, or spiritual rationale that could be adduced in justification of paper money and fractional-reserve banking. The prevailing ways of money production, relying as they do on a panoply of legal privileges, are alien elements in the capitalist [i.e., true free market] economy. They provide illicit incomes, encourage irresponsibility and dependence, stimulate the artificial centralization of political and economic decision-making, and constantly create fundamental disequilibria that threaten the life and welfare of millions of people. In short, paper money and fractional-reserve banking go a long way toward accounting for the excesses for which the capitalist economy is widely chided.

We have argued that these monetary institutions have not come into existence out of any economic necessity. They have been created because they allow an alliance of politicians and bankers to enrich themselves at the expense of all other strata of society. This alliance emerged rather spontaneously in the seventeenth century; it developed in multifarious ways up to the present day, and in the course of its development it created the current monetary institutions.

…The driving force that propelled the development of central banks and paper money was the reckless determination of governments, both aristocratic and democratic, to increase their revenue, if necessary in violation of good faith and of all established rules of commerce.}}

The father of the Deutsche Mark, Wilhelm Röpke (1899-1966) stated:<ref>[http://www.professorfekete.com/articles/AEFAmericanBasesGermanyGoldBasis.pdf The Gold Basis], Antal E Fekete</ref>

{{quote|It is not the gold standard that failed, but those in whose care it was entrusted.}}

Many [[monetary reform]]ers claim that a fiat money/fractional-reserve based banking system is inherently destructive and inevitably generates [[inflation|debasement of the currency]], extreme inequality, the destruction of the middle class<ref name="Paul_End" /> and [[Austrian Business Cycle Theory|wrenching business crises]].<ref>[http://www.marketoracle.co.uk/Article25212.html The Faults of FRB], Thorsten Polleit</ref><ref name="Paul_End" /><ref>[http://mises.org/store/Money-Bank-Credit-and-Economic-Cycles-P290C0.aspx Money, Bank Credit and Economic Cycles], Jesus Huerta de Soto, Mises Institute ISBN: 978-1-933550-39-8</ref><ref>[http://www.mises.org/Books/mysteryofbanking.pdf Murray Rothbard, ''The Mystery of Banking'']</ref><ref name="books.google.com">{{cite book |last= Brown |first= Ellen H. |title= Web of Debt |url= http://books.google.com/books?id=ILMGrEC524UC |accessdate= 2007-12-15 |year= 2007 |publisher= Engdahl Publishing|isbn= 0979560802 }}</ref><ref name="death"/><ref name="monetary.org">[http://www.monetary.org/lostscienceofmoney.html Stephen A. Zarlenga, ''The Lost Science of Money'' AMI (2002)]</ref><ref>[http://mises.org/story/3108 Sound Money], Lew Rockwell</ref><ref>[http://mises.org/story/1971 Our Money Madness], Lew Rockwell</ref><ref>[http://mises.org/rothbard/genuine.asp The Case for a Gold Dollar], Murray Rothbard</ref><ref name="twilight"/> Vladimir Z. Nuri has analyzed fractional reserve banking and considers it a form of economic parasitism.<ref>[http://econpapers.repec.org/paper/wpawuwpma/0203005.htm Fractional Reserve Banking as Economic Parasitism]</ref> Ellen Hodgson Brown has compared fractional reserve banking and the charging of compound interest on created money with cancer.<ref>[http://www.marketoracle.co.uk/Article39053.html Why Bankers Rule the World], Ellen Hodgson Brown</ref>

These views are not accepted by mainstream government-supported economists. For example David Andolfatto, Vice President in the Research Division of the Federal Reserve Bank of St. Louis, has openly called Dr. Ron Paul a "pinhead" for holding such views.<ref>[http://www.lewrockwell.com/wenzel/wenzel87.1.html Senior Fed Economist Calls Ron Paul a Pinhead], LRC</ref> He later tried unsuccessfully to delete or retract his statements and expressed his regret over making the comments.<ref>[http://www.lewrockwell.com/wenzel/wenzel92.1.html Fed Economist in Retreat], Robert Wenzel</ref>

Critics of fractional reserve banking frequently argue that since money creation requires ''loans'' from the banking system, people are required to go further into debt in order for any new money to be created. They theorize that this eventually causes [[Austrian Business Cycle Theory|credit cycle]]s (or [[Austrian Business Cycle Theory|business cycles]]) and debases the [[means of exchange]].<ref>[http://www.marketoracle.co.uk/Article25212.html The Faults of FRB], Thorsten Polleit</ref> They also argue that if debts were ever paid back, there would be no money and the economy would collapse in a debt-deflation trap.<ref>[http://www.youtube.com/watch?v=jqvKjsIxT_8 Money As Debt]</ref> They therefore argue the system is ''inherently unstable'', requiring constantly increasing injections of debt just to avoid deflationary collapse.<ref>[http://www.youtube.com/watch?v=jqvKjsIxT_8 Money As Debt]</ref> They claim this is ultimately unsustainable.<ref>[http://www.youtube.com/watch?v=jqvKjsIxT_8 Money As Debt]</ref><ref>[http://www.youtube.com/watch?v=HZAzBDDnhwg Rich Dad Advisors Discuss Food Storage]</ref>

Many critics find it problematic that banks "create money out of nothing" and consider this fundamentally immoral, akin to [[counterfeiting]]<ref>[http://www.youtube.com/watch?v=QIBFvikcl7g Stacy Herbert and Max Keiser: Flaming Banks] Max Keiser Quote: "Banks counterfeit money. Bernanke, Geithner... anyone in the banking business is just a... just an out of control, rogue, counterfeiting, naked short selling ''weasel''."</ref> and/or [[embezzlement]].<ref>[http://www.dailypaul.com/node/119914 Ron Paul video - fractional reserve banking is fraudulent]</ref><ref name="Paul_End" /><ref>[http://www.marketoracle.co.uk/Article25212.html The Faults of FRB], Thorsten Polleit</ref>

Some also link the alleged negative effects of fractional reserve banking with central banking<ref>[http://www.zerohedge.com/article/guest-post-qe-end-america-we-know-it QE Is The End Of America], ZeroHedge</ref> and a government-enforced "paper" or [[fiat currency]],<ref>[http://www.marketoracle.co.uk/Article27768.html The Federal Reserve Note Is Dead], Jeff Berwick</ref> which they claim allows the practice of fractional reserve banking to continue without a "natural" limitation on the growth of the [[money supply]], thereby causing inherently unsustainable "[[bubble (economics)|bubbles]]" in asset and capital markets, which are vulnerable to Ponzi-like speculation by highly leveraged [[hedge funds]] and other bank agents.<ref name="Paul_End" /><ref>[http://www.debtdeflation.com/blogs/2009/12/23/mish-on-the-fictional-reserve-system/ MISH on the Fictional Reserve System], Steve Keen</ref><ref>[http://mises.org/store/Money-Bank-Credit-and-Economic-Cycles-P290C0.aspx Money, Bank Credit and Economic Cycles], Jesus Huerta de Soto, Mises Institute ISBN: 978-1-933550-39-8</ref><ref name="books.google.com">{{cite book |last= Brown |first= Ellen H. |title= Web of Debt |url= http://books.google.com/books?id=ILMGrEC524UC |accessdate= 2007-12-15 |year= 2007 |publisher= Third Millennium Press |location= Baton Rouge, Louisiana |isbn= 0979560802 }}</ref><ref name="death"/><ref name="monetary.org">[http://www.monetary.org/lostscienceofmoney.html Stephen A. Zarlenga, ''The Lost Science of Money'' AMI (2002)]</ref><ref>[http://mises.org/story/3108 Sound Money], Lew Rockwell</ref><ref>[http://mises.org/story/1971 Our Money Madness], Lew Rockwell</ref><ref>[http://mises.org/rothbard/genuine.asp The Case for a Gold Dollar], Murray Rothbard</ref><ref name="twilight"/><ref>[http://www.marketoracle.co.uk/Article25212.html The Faults of FRB], Thorsten Polleit</ref>

Reformist economists such as [[Murray Rothbard]] support a "full reserve" banking system and criticize [[fractional reserve banking]] as inherently fraudulent.<ref>[http://mises.org/daily/5185/The-Need-for-100-Reserves The Need for 100% Reserves], Frank D. Graham</ref> [[Murray Rothbard]] held this view very strongly throughout his life.<ref name="Paul_End" /><ref>[http://www.marketoracle.co.uk/Article25212.html The Faults of FRB], Thorsten Polleit</ref> Other reformist economists are more tolerant of fractional-reserve banking and support [[free banking]] instead of full reserve banking.<ref>[http://books.google.com/books?id=DFv6OzeBWpQC&pg=PP3&dq=steven+horwitz++banking&sig=VZasp_8pGVvpQsFKMI3W9yp4AlM#PPA231,M1 Microfoundations and Macroeconomics: An Austrian Perspective], Steven Horwitz, pp. 223-232.</ref>

==Basic debate==

The economic, environmental and social effects arising from money creation through fractional-reserve banking have been subject to much heated political debate for well over two centuries.<ref name="The Forgotten War"/><ref name="books.google.com"/><ref name="death"/><ref name="twilight"/><ref>[http://www.silverbearcafe.com/private/fracbank.html Antal E. Fekete, Fractional Reserve Banking Revisited]</ref><ref>[http://news.goldseek.com/GoldSeek/1297199137.php China Inflation and Gold], Darryl Robert Schoon</ref><ref>[http://www.zerohedge.com/article/guest-post-good-bad-and-ugly-part-3 The Good, the Bad and the Ugly], James Quinn</ref><ref>[http://www.marketoracle.co.uk/Article29255.html The Collapse of Paper Money], Darryl Robert Schoon</ref><ref>[http://www.goldismoney2.com/archive/index.php/t-524.html?s=d418ff253326772a09e1a8d992da7753 Venetian Bankers and the Dark Ages]</ref>

Many Austrian economists and monetary reformers focus on the combined use of [[fiat currency]], [[fractional-reserve banking]] and [[central banking]] as a negative feature of modern monetary systems.<ref>[http://www.youtube.com/watch?v=G1l7DY8kdz0 The Fed Unspun]</ref><ref>[http://mises.org/media/4014 The Economics of Legal Tender Laws], [[Jorg Guido Hulsmann]]</ref><ref>[http://mises.org/store/Meltdown-P557.aspx ''Meltdown''], Tom Woods, Regnery Press ISBN: 9781596985872</ref> These commentators use the term "debt-based monetary system" to refer to an economic system where [[money]] is created primarily through fractional-reserve banking techniques, using the banking system.<ref>[http://mises.org/daily/4569 What Does Debt-Based Money Imply for Interest Payments?], Robert Murphy</ref><ref>[http://mises.org/daily/4631 Is Our Money Based On Debt?], Robert Murphy</ref><ref name="speech"/> This form of money is called "debt-based" because as a ''condition of its creation'' someone must go into debt in order for the money to be created and it must be paid back plus interest at some time in the future.

To some commentators, this implies that as the [[money supply]] and the economy grows, the general populace becomes increasingly indebted at the same time due to the fact that debt grows in parallel with money supply growth, and increasing interest payments (from either taxpayers or indebted consumers) are needed to pay bondholders as the money supply grows.<ref>[http://www.marketoracle.co.uk/Article28533.html The Global Debt Crisis], Ellen Hodgson Brown</ref><ref name="death"/><ref name="twilight">[http://www.marketoracle.co.uk/Article4489.html Antal E. Fekete, The Twilight of Irredeemable Debt]</ref><ref name="The Forgotten War">[http://news.goldseek.com/GoldSeek/1192819378.php America's Forgotten War Against the Central Banks], Mike Hewitt</ref>

One argument posits that since debt and the interest on the debt can only be paid in the same form of money, the total debt (principal plus interest) can never be paid in a debt-based monetary system unless more money is created through the same process.<ref>[http://www.marketoracle.co.uk/Article28533.html The Global Debt Crisis], Ellen Hodgson Brown</ref><ref>[http://www.marketoracle.co.uk/Article38581.html The Trillion Dollar Coin: What You Really Need To Know], Rudy Avizuis</ref> For example: if 100 credits are created and loaned into the economy at 10% per year, at the end of the year 110 credits will be needed to pay the loan and extinguish the debt. However, since the additional 10 credits does not yet exist, it too must be borrowed. To some, this implies that the money supply must grow exponentially at the same rate as economic growth and compounding debt in order for the monetary system to remain solvent, as economic activity would be stifled with a static volume of money when interest became due, because in a static-money world no new money could be found to be taken out of circulation to allow debtors to pay outstanding interest to creditors.<ref name="death"/><ref name="twilight"/><ref>[http://globaleconomicanalysis.blogspot.com/2011/01/steve-keen-responds-to-world-economic.html Exponential Credit], MISH,</ref><ref>[http://blog.mises.org/17737/chancellor-not-enough-gold/ Not Enough Gold], Robert Blumen</ref><ref>[http://mises.org/daily/6391/Why-the-Greenbackers-Are-Wrong Why Greenbackers Are Wrong], Thomas Woods</ref>

Others argue that there is in fact no mathematical necessity for the stock of money in a debt-based system to grow, as the "turnover" or "flow" or "velocity" of money can increase to allow for compounding interest payments.<ref>[http://mises.org/daily/4569 What Does Debt-Based Money Imply for Interest Payments?], Robert Murphy</ref><ref>[http://www.debtdeflation.com/blogs/2010/10/08/ami-talks-in-flv-format/ AMI Conference 2010], Steve Keen</ref><ref>[http://www.debtdeflation.com/blogs/2010/11/05/solving-the-paradox-of-monetary-profits-2/ Solving the Paradox of Monetary Profits], Steve Keen</ref><ref>[http://www.zerohedge.com/news/2013-02-11/occams-gold-vs-rube-goldbergs-fiat Occam's Gold]</ref><ref>[http://mises.org/daily/6391/Why-the-Greenbackers-Are-Wrong Why Greenbackers Are Wrong], Thomas Woods</ref> However this does imply that population growth would need to be positive to encourage increased spending rates or some individual consumers would have to increase their rate of spending (and decrease their savings) to expand GDP sufficiently to allow the fixed stock of money to turnover sufficiently to pay for the interest compounding on top of the debt.<ref>[http://globaleconomicanalysis.blogspot.com/2011/01/steve-keen-credit-impulse.html The Credit Impulse], Steve Keen with commentary from MISH</ref><ref>[http://mises.org/daily/4569 What Does Debt-Based Money Imply for Interest Payments?], Robert Murphy</ref><ref>[http://www.debtdeflation.com/blogs/2010/10/08/ami-talks-in-flv-format/ AMI Conference 2010], Steve Keen</ref><ref>[http://www.debtdeflation.com/blogs/2010/11/05/solving-the-paradox-of-monetary-profits-2/ Solving the Paradox of Monetary Profits], Steve Keen</ref> This may mean that Ponzi-like dynamics bubble up in "pockets" of the economy with interest payments being allowed in a fixed money economy, but these debt-fuelled bubbles of higher spending or speculation would pop and die out relatively quickly as there would be no central bank to keep the bubbles alive with further money creation.<ref>[http://mises.org/daily/4569 What Does Debt-Based Money Imply for Interest Payments?], Robert Murphy</ref><ref>[http://globaleconomicanalysis.blogspot.com/2011/01/steve-keen-credit-impulse.html The Credit Impulse], Steve Keen with commentary from MISH</ref><ref>[http://www.zerohedge.com/news/2013-02-11/occams-gold-vs-rube-goldbergs-fiat Occam's Gold]</ref>

Gold, silver and other [[precious metals]] have in the past been used as money.<ref>[http://www.zerohedge.com/news/2013-02-11/occams-gold-vs-rube-goldbergs-fiat Occam's Gold]</ref> Because of the difficulty in increasing the supply of precious metals quickly, some [[monetary reform]]ers believe a return to the [[gold standard]], or a similar system of "hard" or "real" asset-backed currency, is the only way to stabilize the growth of the money supply. These monetary reformers often refer to the gold standard and [[silver standard]] as "sound money" or "honest money".<ref>[http://mises.org/daily/4860 Money: Sound and Unsound], Mark Thornton commentary on Joseph Salerno's book</ref><ref>[http://mises.org/daily/6391/Why-the-Greenbackers-Are-Wrong Why Greenbackers Are Wrong], Thomas Woods</ref>

==Main criticisms==

In a 2003 statement to the U.S. House of Representatives, Ron Paul stated "if unchecked, the economic and political chaos that comes from currency destruction inevitably leads to tyranny".<ref name="house.gov">[http://www.house.gov/paul/congrec/congrec2003/cr090503.htm Paper Ron Paul, Paper Money and Tyranny, Speech in U.S. House of Representative, September 5, 2003]</ref>

Some economic thinkers (primarily members of the [[Austrian School]]) and political commentators believe that a debt-based monetary system amounts to a subtle form of monetary "[[fraud]]" in that it creates money "costlessly" through the use of [[fractional-reserve banking]] techniques.<ref>[http://www.mises.org/rothbard/moneyback.asp Taking Money Back, by Murray Rothbard]</ref>

Michael Rowbotham is an active proponent of [[monetary reform]], and argues that this system of [[money supply]] is perverse and inherently monopolistic and "anti-democratic", as it creates an inflationary exponential growth imperative in the economy which leads to over-centralization and environmentally damaging and unstable over-consumption. Critics such as Rowbotham argue that the indebted are forced to induce new consumers to spend their way into debt so existing loans can be repaid with new debt-created money. Failure to achieve this goal results in [[foreclosure]] for those businesses and [[insolvency]] in the banking system that leads to economic collapse due to the sudden contraction of the money supply.<ref name="death"/><ref name="Ponzi Nation">[http://www.iimagazine.com/article.aspx?articleID=1234345 Ponzi Nation]</ref> This failure is inevitable due to the fact that, eventually, debt-saturated businesses and governments will no longer be able to force individuals into further debt due to the fact that they are already debt-saturated themselves. Once this point is reached, economic collapse is inevitable without wholesale debt repudiation.

Mark Anielski as well as some political thinkers such as Rowbotham and some economists (such as Hyman Minsky, Steve Keen and Mike Shedlock) argue that this system of money supply has characteristics similar to a [[pyramid scheme]], where the newly indebted are compelled to induce others into debt to pay off their own debts.<ref>[http://globaleconomicanalysis.blogspot.com/2011/01/steve-keen-credit-impulse.html The Credit Impulse], Steve Keen with commentary from MISH</ref><ref>[http://www.lin.ca/resource/html/arpa02/PC1-FertileObfuscation.pdf ''Fertile Obfuscation: Making Money Whilst Eroding Living Capital''], 34th Annual Conference of the Canadian Economics Association, Mark Anielski</ref> It is therefore argued by a number of monetary reformers that fractional-reserve banking and the associated exponential growth of money in the economy "forces" the economy towards indebted consumerism.<ref name="books.google.com"/>

Rowbotham argues that a major negative side-effect of the debt-based monetary system is its effect on agriculture, claiming that residential development produces by far the greatest continuous injection of debt money into modern debt-based economies because banks secure loans primarily with developed property and are therefore willing to issue more debt-money against property development than any other asset class. Therefore, significant super-normal profits can be generated by re-zoning agricultural land and replacing it with low-density [[House|housing]].<ref name="death"/>
If this is correct, this trend will lead to the destruction of fertile arable land, as farmers cannot compete to retain fertile arable land from property developers at the periphery of major population centers, and as this land is then progressively re-zoned for speculative new residential development. Rowbotham predicts that the global supply of fertile arable land will systematically and catastrophically decline as perverse monetary incentives inherent in the current debt-based system favor short-term speculative land development over long-term food security, leading to a broad decline in the quality and nutritional value of agricultural produce and, eventually, a dramatic increase in the prices of many "soft" commodities - which could then lead to actual food shortages for poorer segments of the world population.<ref>[http://www.marketoracle.co.uk/Article27874.html Horrific Global Food Crisis is Looming], Michael Snyder</ref><ref>[http://www.lewrockwell.com/blog/lewrw/archives/85588.html Inflation and Bacteria], Michael Rozeff</ref><ref>[http://www.lewrockwell.com/blog/lewrw/archives/76920.html The Corporate State and the Tapeworm Economy], Catherine Austin Fitts</ref><ref name="death"/><ref>[http://www.wsws.org/articles/2007/dec2007/food-d22.shtml Naomi Spencer, World Socialist Website, "Severe food shortages, price spikes threaten world population", 22 December 2007]</ref><ref>[http://www.preparednesspro.com/blog/food-shortage-series-part-1/ Food Shortage Series],Kellene Bishop</ref> This has been referred to as the problem of "Peak Everything".<ref>[http://globaleconomicanalysis.blogspot.com/2011/03/oil-prices-are-double-edged-sword-peak.html Peak Everything?], MISH</ref><ref>[http://www.marketoracle.co.uk/Article28218.html "Peak Everything"], Jeremy Grantham</ref>

If for any reason the monetary system broke down, urban populations (nominally "rich" but poor in terms of direct access to food supply) could find basic foodstuffs either rationed or contaminated with lower quality products - or even unavailable at any price, ultimately resulting in food security becoming a major public policy issue - particularly if combined with oil supply shortages or an oil price spike,<ref>[http://www.marketoracle.co.uk/Article27874.html Horrific Global Food Crisis is Looming], Michael Snyder</ref><ref>[http://jsmineset.com/2011/02/24/in-the-news-today-791/ Collapse]</ref> as major population centers worldwide are almost entirely reliant on mass transportation of food from distant (or even foreign) locations to survive day-to-day.<ref>[http://www.marketoracle.co.uk/Article27874.html Horrific Global Food Crisis is Looming], Michael Snyder</ref><ref name="death"/><ref>[http://www.preparednesspro.com/blog/food-shortage-series-part-1/ Food Shortage Series],Kellene Bishop</ref><ref>[http://www.wsws.org/articles/2007/dec2007/food-d22.shtml Severe food shortages, price spikes threaten world population]</ref><ref>[http://www.nytimes.com/2010/12/18/business/global/18yuan.html?hpw Inflation in China]</ref><ref>[http://www.lewrockwell.com/blog/lewrw/archives/76920.html The Corporate State and the Tapeworm Economy], Catherine Austin Fitts</ref><ref>[http://jsmineset.com/2011/02/24/in-the-news-today-791/ Collapse]</ref><ref>[http://www.rickackerman.com/2011/04/bee-die-off-threatens-global-food-calamity/ Bee Die Off]</ref><ref>[http://globaleconomicanalysis.blogspot.com/2011/03/oil-prices-are-double-edged-sword-peak.html Peak Everything?], MISH</ref><ref>[http://lewrockwell.com/bonner/bonner602.html We're all going to die]</ref> In addition, fresh water (an essential commodity that is subsidised in its production by state-controlled entities in virtually every country around the world) appears to be rapidly diminishing through pollution and over-use, further threatening the global food supply in coming decades, resulting in what some commentators are describing as a global water crisis of "horrific" proportions.<ref>[http://lewrockwell.com/rep2/water-crisis-coming.html 25 Signs That a Horrific Global Water Crisis Is Coming], Economic Collapse Blog</ref><ref>[http://www.zerohedge.com/news/2013-03-06/guest-post-30-facts-coming-water-crisis-will-change-everything 30 Facts]</ref> Yemeni is at the cutting edge of these issues, having a simultaneous and inter-related water and drug crisis caused by economic stagnation, unemployment and social inequality.<ref>[http://www.youtube.com/watch?v=b0PgJ4fqpIM Khat]</ref> Recent "scandals" involving Mad Cow Disease in Britain, <ref>[http://www.centerforfoodsafety.org/campaign/food-safety/mad-cow-disease/other-resources/a-consumers-guide-to-mad-cow-disease/history-of-rendering-cattle-cannibalism-in-the-usa/ History of Rendering]</ref> the fraudulent supply of horse meat sold as beef in Europe,<ref>[http://www.theaustralian.com.au/news/world/horsemeat-scandal-a-global-conspiracy/story-e6frg6so-1226574880191 Horsemeat a global conspiracy]</ref> rat poison found in Polish dairy products<ref>[http://www.wbj.pl/article-61746-scandals-rock-polish-food-exports.html Scandals Rock Polish Food Exports]</ref> and rat meat fraudulently sold as lamb in China<ref>[http://www.zerohedge.com/news/2013-05-03/forget-horse-meat-or-fake-tuna-rat-meat-being-sold-lamb-china Rat Meat Sold as Lamb in China]</ref> could be seen as the logical conclusion of Rowbotham's analysis, as economic pressures build to systematically debase the quality of inputs throughout the food chain as producers fight the effects of cost-push inflation and try to satisfy the need for ever-increasing productivity in the industrialized food industry by systematically debasing their products until they are not fit for human consumption, but are allowed to be consumed by the authorities anyway because of the urgent need to feed the general population within their shrinking incomes.<ref>[http://www.edmundconway.com/2013/02/horse-meat-scandal-the-economics/ Horse meat scandal: the economics]</ref><ref>[http://www.theaustralian.com.au/news/world/horsemeat-scandal-a-global-conspiracy/story-e6frg6so-1226574880191 Horsemeat a global conspiracy]</ref> For example, it is alleged that Mad Cow Disease was caused by British authorities reducing heating standards in the waste meat rendering process to reduce the cost of food production in Britain. Food scandals are becoming so prevalent a new term "Food Fraud" has become popular to describe this escalating phenomenon, mirroring monetary fraud in the wider economic system.<ref>[http://www.zerohedge.com/news/2013-05-03/forget-horse-meat-or-fake-tuna-rat-meat-being-sold-lamb-china Rat Meat Being Sold as Lamb in China]</ref> If Rowbotham's analysis is correct, these food contamination and food debasement scandals will become ongoing and endemic in coming years, but may be censored by the authorities in future to avoid widespread protests.<ref>[http://www.zerohedge.com/news/2013-02-11/guest-post-more-stealth-inflation-maker%E2%80%99s-mark-slashes-alcohol-content More Stealth Inflation]</ref><ref>[http://www.edmundconway.com/2013/02/horse-meat-scandal-the-economics/ Horse meat scandal: the economics]</ref><ref>[http://www.zerohedge.com/contributed/2013-02-14/hidden-inflation-everywhere-watered-down-bourbon-horse-meat-chili Hidden Inflation Everywhere]</ref><ref>[http://en.wikipedia.org/wiki/2008_Chinese_milk_scandal Chinese Milk Scandal]</ref> This has already occurred in China with authorities trying to censor reports of toxic melamine in Chinese milk products<ref>[http://en.wikipedia.org/wiki/2008_Chinese_milk_scandal Chinese Milk Scandal]</ref> and in the UK with British authorities downplaying or delaying information relating to the huge scale of the horse meat scandal.<ref>[http://www.youtube.com/watch?v=SxZtfi2pYNo&list=SPPszygYHA9K2ZtV_1KphSugBB7iZqbFyz&index=6 Horsemeat Burgers], Max Keiser</ref> Max Keiser has made a direct connection between stealth monetary debasement throughout the banking system and stealth debasement of inputs throughout the British food chain.<ref>[http://www.youtube.com/watch?v=SxZtfi2pYNo&list=SPPszygYHA9K2ZtV_1KphSugBB7iZqbFyz&index=6 Horsemeat Burger]</ref> Quality adjustments in official CPI measurements often ''reduce'' the rate of inflation by assuming quality ''improvements'' - however no government has taken into account these food scandals in ''increasing'' the effective rate of inflation by taking into account dramatic ''reductions'' in the quality of food production.<ref>[http://www.abs.gov.au/websitedbs/webfaq.nsf/home/consumer+price+index+faqs CPI FAQs]</ref><ref>[http://www.econ.rochester.edu/people/BilsPapers/growth_qje_revision_August_2008.pdf BLS paper on CPI adjustments for quality]</ref><ref>[http://www.zerohedge.com/news/2013-03-02/first-horsemeat-trading-now-59-tuna-sold-us-isn%E2%80%99t-tuna 59% Of Tuna Isn't Tuna]</ref> If the dramatic degradation in the quality of food production was fully taken into account, it is likely that "true" inflation would be measured far in excess of official figures, and may in some instances (such as with the UK horse meat scandal) be reaching something similar to hyperinflation in some years, as food that changes from "beef" to "horse meat" is effectively a tiny fraction of the quality of the product of only a few years or months ago.<ref>[http://www.youtube.com/watch?v=SxZtfi2pYNo&list=SPPszygYHA9K2ZtV_1KphSugBB7iZqbFyz&index=6 Horsemeat Burgers], Max Keiser</ref>

Others consider that the core problem is not food security, nor overpopulation, nor environmental destruction, nor excessive carbon emissions due to non-pricing of energy producing externalities, nor excessive "specialization" of labor in the midst of monetary dysfunction, but excessive government regulation, causing capital destruction.<ref>[http://mises.org/daily/5277/When-Capital-Is-Nowhere-in-View When Capital Is Nowhere In View], Jeffrey Tucker</ref><ref>[http://www.garynorth.com/public/8071.cfm Population Growth as Propaganda], Gary North</ref><ref>[http://www.marketoracle.co.uk/Article39449.html An Orwellian America], Gordon T Long</ref>

The fundamental problem with the current monetary system that all Austrian economists agree on is that in the midst of constant credit creation and monetary dysfunction is it ''impossible'' to know what unsustainable [[malinvestment]]s are taking place in the economy, except to acknowledge that they ''must'' be taking place somewhere in the midst of unsustainable credit growth.<ref>[http://www.goldensextant.com/SavingtheSystem.html Saving the System], Robert K. Landis</ref>

===Effects on economic health: Ponzi scheme dynamics===

According to Michael Rowbotham and many Austrian theorists the expansion of money through debt is unsustainable and necessarily fuels and creates [[Austrian Business Cycle Theory|economic bubbles]].<ref>[http://mises.org/daily/5567/Hayeks-Ghost-Haunts-the-World Hayek's Ghost Haunts the World], Jeffrey Tucker</ref> This concentrates wealth in the hands of private banks as the populace is forced into [[debt]] simply to own a home and educate their children, hoping that the loans can be repaid by others going into debt in ''greater amounts'' later to purchase the assets they themselves have purchased through incurring large amounts of personal debt.<ref name="death"/> However, debt expansion leads to price appreciation of assets through speculation as the financial market becomes riskier and this process is unsustainable in the long run, with the last cycle of indebted being wiped out when they cannot find anyone to buy the assets they themselves have purchased by going into massive debt. Doug Noland, Steve Keen, Edward Chancellor, Bill Bonner and many others have compared this type of market to an enormous State-sponsored global monetary [[Ponzi scheme]].<ref>[http://www.debtdeflation.com/blogs/2008/12/13/the-worlds-biggest-ponzi-scheme/ The World's Biggest Ponzi Scheme], Steve Keen</ref><ref>[http://www.iimagazine.com/article.aspx?articleID=1234345 Ponzi Nation,"Who is Hyman Minsky?", para 6]</ref><ref>[http://www.marketoracle.co.uk/Article26678.html One Gargantuan Ponzi Scheme], Paul Hallyer</ref><ref>[http://prudentbear.com/dmdocuments/HowCouldIrvingFisherHaveBeenSoWrong.pdf How Could Irving Fisher Have Been So Wrong?], Doug Noland</ref><ref>[http://globaleconomicanalysis.blogspot.com/2010/08/former-fed-governor-mishkin-paid-124000.html Mishkin], MISH</ref><ref>[http://www.lewrockwell.com/bonner/bonner467.html Warning], Bill Bonner</ref>

The bust phase of this Ponzi-like [[business cycle]] occurs when "debt-based" money growth cannot continue because the debt levels are already at saturation levels, meaning growth in debt money slows or contracts, catching newly indebted businesses and consumers who are left out of the growth cycle, triggering a combined liquidity and solvency crisis when markets seize up due to a collapse in the artificially-supported prices in financial markets.<ref name="death"/><ref name="Ponzi Nation"/>

===Effects on the environment===
There are also critics in the left-wing and environmentalist camps who contend fractional reserve banking (by creating a necessity for indefinite [[economic growth]]) leads to environmental destruction and a sudden, catastrophic depletion of the earth's natural resources as the unsustainable, exponential consumption of the world's scarce natural resources reaches its inevitable limits.<ref>David Korten, ''Agenda For A New Economy'', Berret-Koehler, 2009</ref><ref>[http://www.monbiot.com/archives/2004/10/06/no-longer-obeying-orders/ George Monbiot], about five sixths of the way down</ref>

===Inherent problems with the system===

Some monetary reformers predict that there will be an increased incidence of financial crises in the developed world, as economic and population growth inevitably slow and as the success of financial sector lobbying results in increased tax loopholes and a reduction in effective redistributive [[tax]]es which, combined with the debt-legacy of the [[welfare state]], allows an intense and unsustainable concentration of wealth and political power in the financial services sector.<ref name="death">{{cite book |last= Rowbotham |first= Michael |title= The Grip of Death: A Study of Modern Money, Debt Slavery and Destructive Economics | year= 1998 |publisher= Jon Carpenter Publishing |isbn= 9781897766408 }}</ref><ref>[http://www.youtube.com/watch?v=TdVc40Mc9cQ&feature=related Andrew Sheng, INET presentation]</ref>

Some monetary reformers argue that perverse incentives in the financial services industry lead to collusive relationships between governments and bankers which are economically and socially destablizing in the long run.<ref>[http://mises.org/media/4014 The Economics of Legal Tender Laws], Jorg Guido Hulsmann</ref>

Given that the financial system requires ever higher levels of indebtness from the general populace for its solvency, it is vital that the indebted "victims" who must sink deeper into debt for the system to survive do so voluntarily and willingly and are not made aware of the consequences of purchasing consumables with debt money.<ref name="death">{{cite book |last= Rowbotham |first= Michael |title= The Grip of Death: A Study of Modern Money, Debt Slavery and Destructive Economics | year= 1998 |publisher= Jon Carpenter Publishing |isbn= 9781897766408 }}</ref> Some isolated politicians have previously highlighted the fact that mainstream media organizations appear to downplay or minimize the seriousness of deficit spending by government and debt-sourced spending of all kinds.<ref>[http://www.senate.gov/~budget/democratic/statements/2005/fs_reconciliationfloorstmt102005.pdf Speech by Senator Kent Conrad (D-ND) on October 20, 2005 regarding the "misleading" reporting of deficit spending by the mainstream media]</ref> Euphemisms for debt and personal and national bankruptcy associated with debt have been developed to delay a mass panic away from government bonds or debt. For example, the associated growth of debt-based derivatives during the upward phase of the debt money cycle was referred to as "[[innovation]]" in financial markets.<ref>[http://www.nytimes.com/2007/12/03/opinion/03krugman.html?em&ex=1196917200&en=ac60abcdbd977d07&ei=5087%0A Innovating Our Way to Financial Crisis, by Paul Krugman]</ref>

[[Bankruptcy]] laws differ to a small degree in different jurisdictions but in all developed economies unpaid debt results in legal penalties, property confiscation on behalf of the creditor and income [[sequestration]]. Although in Christian, Jewish and Muslim religious practice there have been traditions of debt relief or laws against [[usury]], in no modern Western jurisdiction are any debts periodically forgiven or cancelled in recognition of the inherent impossibility of repaying debts in circumstances where the debt-based monetary cycle has inevitably resulted in too little new [[debt money]] being injected into the [[money supply]] to pay for the currently outstanding debts.<ref>[http://www.nakedcapitalism.com/2007/11/new-bankruptcy-law-backfires-by.html Bankruptcy law backfires]</ref>

On a national level, if the issuance of [[government bonds]] becomes unsustainable, sovereign [[bankruptcy]] can occur - and has occurred many times in history.<ref>[http://mises.org/daily/4869 Can the Fed Become Insolvent?], Robert Murphy</ref><ref>[http://elainemeinelsupkis.typepad.com/money_matters/2007/10/greenspaniel-an.html Greenspaniel and U.S. bankruptcy]</ref><ref>[http://www.prudentbear.com/index.php/thebearslairview?art_id=10493 Dee-Fault!], Martin Hutchinson, Prudent Bear</ref> [[Sovereign debt]] crises due to the inability of nations to pay interest on [[government bonds]] have occurred frequently and regularly in the third world and less frequently (every 30 years or so) in the first world as a result of high levels of unsustainable public debt - often because private debts are assumed by a corrupt government through large private bank bailouts.<ref>[http://www.dailymail.co.uk/debate/article-1331076/Ireland-bailout-Lets-frank-7bn-bunch-liars-crooks-bunglers.html Ireland Bailout], Alex Brummer</ref><ref name="Willie_Misdiagnosis">[http://www.marketoracle.co.uk/Article24543.html QE2 and the Great Economic Misdiagnosis], Jim Willie, November 24, 2010.</ref> The [[Latin American debt crisis]] is an example of sovereign debt levels becoming unsustainable, resulting in a [[currency crisis]] and economic collapse, as [[interest rates]] rise precipitously due to the inability of the national government to attract financiers to purchase new [[government bonds]] to inject new debt money into the ailing economy.<ref name="Willie_Misdiagnosis" />

At such times, it is the responsibility of the [[IMF]] to come in as a kind of supranational [[central bank]] to mediate between the national government and international financiers.<ref>[http://globaleconomicanalysis.blogspot.com/2011/05/imf-chief-pulled-from-plane-in-new-york.html Time to Dissolve the IMF], MISH</ref> The role of the [[IMF]] as [[central bank]] to the world has similar responsibilities and risks inherent in [[central bank]]ing which are described below in relation to the role of the [[Federal Reserve]]. If the [[IMF]] repeatedly intervenes to save financiers from loss when sovereign bankruptcy occurs, this has a tendency to induce [[moral hazard]] and can encourage the financing of reckless government spending and borrowing.<ref>[http://www.rgemonitor.com/41 IMF Reform and International Lender of Last Resort, RGE Monitor]</ref><ref>[http://info.interactivist.net/article.pl?sid=02/11/07/199213&mode=thread&tid=8 Banking Bunkum, by Henry C.K. Liu]</ref><ref name="Willie_Misdiagnosis" />

A [[single currency]] regime such as the [[Euro]] can mask national liquidity or solvency crises, by ensuring that a national currency is not quickly exchangeable for another, thereby restricting the ability of national governments to depreciate their currencies and cutting off the possibility that the real value of [[government bond]] interest repayments could decline relative to other currencies.<ref>[http://www.dailymail.co.uk/news/article-1316442/Anglo-Irish-Bank-bail-Will-Irish-economic-meltdown-hit-UKs-fragile-recovery.html Irish Meltdown], UK Mail On-line,</ref><ref>[http://www.marketoracle.co.uk/Article24459.html Ireland Bailout Consequences for Britain, Portugal Next?], Nadeem Walayat</ref><ref name="Willie_Misdiagnosis" /><ref>[http://news.goldseek.com/RichardDaughty/1192374060.php The Mogambo Theory of Currency Relativity]</ref><ref>[http://www.youtube.com/watch?v=IvJEJEGzeU8&feature=player_embedded#! Putin ditches dollar], RTTV</ref> This may however increase the risk of bond default where indebted national governments cannot pay back the interest payments in the denominated common currency.<ref>[http://www.dailymail.co.uk/news/article-1316442/Anglo-Irish-Bank-bail-Will-Irish-economic-meltdown-hit-UKs-fragile-recovery.html Irish Meltdown], UK Mail On-line,</ref><ref>[http://blog.mises.org/15129/bagus-explains-the-ecb-and-the-euro/ The Tragedy of the Euro], Philipp Bagus</ref>

===Types of downturns===
{{main|Austrian Business Cycle Theory}}
[[Austrian Business Cycle Theory]] states that artificially low interest rates set by any coercive price-fixing entity will inevitably stimulate malinvestment in the wrong capital projects which will inevitably lead to an unsustainable boom followed by a bust.<ref>[http://mises.org/daily/5164/The-Cure-Low-Interest-Rates-Is-the-Disease The Cure (Low Interest Rates) Is The Disease], Thorsten Polleit</ref> However, the precise nature of the downturn and the way in which losses are allocated within the economy are both dependent on the actions government and bankers take to forgive debt or control credit and there are two main kinds of debt money contraction that can cause a collapse in the value of inflated assets.

A "credit squeeze" occurs where new debt money is difficult to access without a high [[credit rating]]. At such times marginal borrowers, or those who have borrowed at the end of any debt-induced asset bubble, get "squeezed" out of further borrowing and a contraction in the growth of new debt money occurs, triggering a slow down in the growth of inflated assets. Those assets can then be "harvested" by the [[private bank]]s through widespread [[foreclosure]] or [[bankruptcy]] and re-sold to those with the money to buy the distressed assets.<ref name="marketoracle.co.uk">[http://www.marketoracle.co.uk/Article2882.html Market Fundamentalism, by Richard C. Cook]</ref>

A "credit crunch" occurs where new debt money is not available at any [[interest rate]] - even for those with previously acceptable credit ratings - due to widespread insolvency in the banking system. At such times, it is the banking system itself that is [[insolvent]] and other financial institutions (including overseas financiers) become reluctant to lend to the domestic banking system, resulting in the domestic banking system being unable to issue loans even to credit worthy borrowers.<ref>[http://en.wikipedia.org/wiki/Credit_crunch Credit crunch], Wikipedia definition</ref>

At any stage during the downward spiral of a "credit crunch", the [[central bank]] in a modern economy can try to save the system from complete economic meltdown by purchasing (either indefinitely or temporarily) the failed debts of the private banks.<ref>[http://www.youtube.com/watch?v=PTUY16CkS-k&feature=player_embedded#! Quantitative Easing Explained]</ref><ref>[http://www.marketoracle.co.uk/Article24489.html Does the Fed Create Money?] Michael Pento</ref><ref>[http://www.telegraph.co.uk/money/main.jhtml?view=DETAILS&grid=A1YourView&xml=/money/2007/12/19/ccom119.xml ECB's mind-numbing cash injection]</ref> This involves swapping depreciating "failed" assets with hard cash, thereby allowing the banks to maintain their net asset position and continue to give the impression of solvency to their auditors and depositors. However, doing so results in cash being transferred to the private banks in exchange for [[bad debt]], thereby violating the general economic precept to avoid [[moral hazard]] and effectively makes liquid the failed lending decisions of the [[private bank]]s.<ref>[http://globaleconomicanalysis.blogspot.com/2011/06/prudently-managed-banks-victimized-by.html Prudent Banks Victimized], MISH</ref><ref>[http://www.rgemonitor.com/blog/roubini/228924/ Privatizing Profits and Socializing Losses, by Nouriel Roubini]</ref> In the U.S. banking system this is called "opening the Fed discount window", where the [[Federal Reserve]] temporarily purchases the failed investment portfolios of distressed private banks in exchange for cash. However, this rescue measure may only delay, rather than avoid, the realization of losses in the banking system, as the central bank cannot "force" new borrowing into the system to inject new debt money into the money supply. Somebody has to be a [[counterparty]] to borrow the debt money that is being offered. If all market participants realize a "[[bubble (economics)|bubble]]" has formed in assets markets, there will be few (or no) buyers for new debt money, as no one wants to borrow to buy inflated assets no one else will buy. Money markets can therefore remain illiquid even with intense [[central bank]] support.<ref>[http://www.prudentbear.com/index.php/creditbubblebulletinview?art_id=10511 Favorable or Unfavorable], Doug Noland, Prudent Bear</ref>

Furthermore, banks can go bust even with intense central bank support, if the issue is not one of liquidity, but one of solvency.<ref>[http://www.ft.com/cms/s/0/233ae764-abef-11dc-82f0-0000779fd2ac.html Central Banks have No Plan]</ref><ref>[http://www.rgemonitor.com/blog/roubini/233120 Central Banks get desperate]</ref><ref>[http://www.youtube.com/watch?v=VMngK0t5WkY $20 Trillion in Bad Debt], Max Keiser</ref><ref>[http://www.marketoracle.co.uk/Article27686.html Bernanke's QEx Money Printing Box], Gordon T. Long</ref>

===Market meddling and pushing on a string===
Some monetary economists describe the opening of the Fed discount window after the bursting of an asset bubble and swapping of "junk" with new money as "pushing on a piece of string", as this measure does not solve the key problem – creating new credit (or debt money) to keep up the growth in the money supply and maintain the required level of liquidity in credit markets.<ref>[http://www.mises.org/story/2695 Don't Discount the Fed Discount Window]</ref><ref>[http://www.federalreserve.gov/Pubs/FEDS/2004/200401/200401pap.pdf Monetary Policy in Deflation: The Liquidity Trap in History and Practice]</ref> This is because unlimited central bank money and low interest rates ''allow'' credit creation, but cannot ''force'' it into the system. In order for any new debt money to be created, someone has to ''borrow'' the excess reserves in order for the money to be injected into the system. With an endogenous money system, money is only created if someone wants to borrow money from a bank. If corporations and individuals are already heavily indebted (or insolvent after the bursting of a debt-induced bubble) there are no credit-worthy borrowers to lend to. This means there are no new buyers at the margin to keep asset prices at high levels. If there are no new marginal buyers, "liquidity" - or debt growth - dries up and volumes and prices drop suddenly, forcing liquidation and creating a sudden cascading effect in highly leveraged markets very similar to the end of an unsustainable Ponzi scheme. The only ones able to stimulate the economy are the tiny minority of bankers who have been bailed out by the central bank and even if they spent lavishly to try to "help" the economy, this would in no way compensate for the lack of spending in the general economy.

To encourage fresh borrowing, central banks generally combine these rescue measures with an interest rate cut to encourage more new borrowing to allow the existing (failed) debts to be [[liquidate]]d at or close to their original value. When [[Alan Greenspan]] repeatedly resorted to this tactic to revive illiquid [[money market]]s this became known in the market as the "[[Greenspan put]]", as the effect of these repeated reductions in interest rates was similar to a [[put option]] in the [[stockmarket]], insuring [[bank]]s' lending mistakes would be covered up by the Federal Reserve.<ref>[http://www.iie.com/publications/wp/02-1.pdf Moral Hazard and the "Greenspan Put"]</ref>

When interest rates cannot go any lower (the so-called "zero bound" monetary problem) and people still will not - or cannot - load themselves up with more debt, then to stave off a collapse of market prices due to the drying up of marginal buyers at inflated debt-saturated prices central banks have resorted to "Quantitative Easing" which is the abandonment of interest rate setting and the targeting of bulk purchases of bank assets to artificially pump up their price and keep the banking system solvent.<ref>[http://www.marketoracle.co.uk/Article38855.html QE for Dummies], Dr Martenson</ref> In addition, the Keynesian solution is to run large public deficits and indebt future generations (who, they hypothesize, are more likely to be able to pay through increased future growth).<ref>[http://www.zerohedge.com/news/2013-02-09/paul-krugman-we-should-kick-can-down-road-it%E2%80%99s-responsible-thing-do "Kick the Can Down the Road"]</ref><ref>[http://www.nytimes.com/2010/12/26/business/26view.html?_r=1&scp=1&sq=shiller&st=cse Stimulus Without More Debt], Robert Shiller</ref> Fabian socialists, and Keynesian economists such as Paul Krugman and Robert Shiller, argue that governments must take charge of the responsibility of spending more (and taking on more debt) on behalf of the public (who are too fearful to take on more debt themselves) in order to compensate for the immediate and urgent ''present'' insufficiency in total private consumption.<ref>[http://www.zerohedge.com/news/2013-02-09/paul-krugman-we-should-kick-can-down-road-it%E2%80%99s-responsible-thing-do "Kick the Can Down the Road"]</ref><ref>[http://www.nytimes.com/2011/09/05/opinion/the-fatal-distraction.html?src=me&ref=general The Fatal Distraction], Paul Krugman</ref><ref>[http://www.nytimes.com/2010/12/26/business/26view.html?_r=1&scp=1&sq=shiller&st=cse Stimulus Without More Debt], Robert Shiller</ref><ref>[http://mises.org/daily/5616/Is-the-Need-for-Stimulus-Undeniable Is the Need for Stimulus "Undeniable"?], Hunter Lewis</ref> Paul Krugman and Robert Reich are prominent advocates of the policy of spending trillions of government money to help stimulate the economy, if spending billions does not work.<ref>[http://www.realclearpolitics.com/video/2011/09/01/reich_government_has_to_spend_more_to_get_out_of_debt.html Reich: Government Has To Spend More To Get Out Of Debt]</ref><ref>[http://www.nytimes.com/2010/06/21/opinion/21krugman.html?dbk Budget Deficits], Paul Krugman</ref><ref>[http://globaleconomicanalysis.blogspot.com/2010/10/krugman-and-inevitable-i-told-you-so.html Krugman], MISH</ref><ref>[http://krugman-in-wonderland.blogspot.com/2010/11/inflation-prisoner.html The Inflation Prisoner], William Anderson</ref> For economists such as Paul Krugman, if the "more and more government spending" solution does not work initially, it is a sign that not enough government money has been spent.<ref>[http://www.lewrockwell.com/sowell/sowell44.1.html Fed Up With the Fed?], Thomas Sowell</ref><ref>[http://www.nytimes.com/2010/12/20/opinion/20krugman.html?hp When Zombies Win], Paul Krugman, NY Times</ref><ref>[http://globaleconomicanalysis.blogspot.com/2010/10/krugman-and-inevitable-i-told-you-so.html Krugman], MISH</ref> It is his view that the "deflationary" Japanese recession from 1991/2 could have been cured by the Japanese government going into even more debt than the current net debt to GDP ratio of 110%.<ref>[http://www.nytimes.com/2010/06/21/opinion/21krugman.html?dbk Budget Deficits], Paul Krugman</ref><ref>[http://www.economist.com/node/15867844 Japan's debt-ridden economy], The Economist</ref> Although some commentators have puzzled over exactly which group Krugman blames for the crisis, Krugman repeatedly calls for the government "to do more" and "spend more" as the "responsible" way out of the crisis, regardless of the true culprits or cause of the crisis.<ref>[http://www.zerohedge.com/news/2013-02-09/paul-krugman-we-should-kick-can-down-road-it%E2%80%99s-responsible-thing-do "Kick the Can Down the Road"]</ref><ref>[http://www.nytimes.com/2011/08/08/opinion/credibility-chutzpah-and-debt.html?_r=1&hp Credibility, Chutzpah and Debt], Paul Krugman</ref><ref>[http://www.thedailybell.com/2271/Shock-Krugman-Turns-on-Elites.html Shock Krugman Turns on Elites], The Daily Bell</ref><ref>[http://www.nytimes.com/2011/04/11/opinion/11krugman.html?_r=2&hp Obama Is Missing], Paul Krugman</ref> When pressed to find culprits he identifies "extremist" Republicans and, somewhat paradoxically, those who call for ''fiscal restraint'' to be the real source of the debt crisis and the downgrading of US sovereign debt.<ref>[http://www.nytimes.com/2011/08/08/opinion/credibility-chutzpah-and-debt.html?_r=1&hp Credibility, Chutzpah and Debt], Paul Krugman</ref> How ''increasing'' the debt load will solve the debt problem is never explained, apart from Krugman repeatedly stating that the "long-term" debt problem is not as important as the immediate and urgent "lack of spending" problem.<ref>[http://www.zerohedge.com/news/2013-02-09/paul-krugman-we-should-kick-can-down-road-it%E2%80%99s-responsible-thing-do "Kick the Can Down the Road"]</ref> Krugman has never advocated the simple solution of debt default as the way to solve the debt crisis, despite de-emphasizing the scale of the debt by arguing that we (mostly) "owe it to ourselves".<ref>[http://krugman.blogs.nytimes.com/2011/12/28/debt-is-mostly-money-we-owe-to-ourselves/ Debt is mostly money we owe to ourselves]</ref> If this was the case, debt default would be the easiest solution. On the other hand, Paul Krugman has yet to clearly identify a country or a time when government spending became excessive or was out of control and resulted in too much accumulation of debt and malinvestment during an economic slowdown. He has intimated that, perhaps, the Greek government may have spent too much, but he treats that as an isolated case and not applicable to the rest of Europe or the United States, despite some countries having comparable debt levels to Greece's.<ref>[http://www.nytimes.com/2011/09/12/opinion/an-impeccable-disaster.html?_r=1&hp An Impeccable Disaster], Paul Krugman</ref> He has also never explained or written about what happens ''after'' government stimulus spending inevitably stops, which Austrians argue would inevitably result in an even bigger slump if it is not continually replaced with something similar or bigger.<ref>[http://krugman.blogs.nytimes.com/2013/05/09/the-moral-equivalent-of-space-aliens/ Space Aliens], Paul Krugman. Quote: "To almost everyone’s surprise, Japan — Japan! — has emerged as the advanced country most willing to break with austerian orthodoxy and try a combination of aggressive monetary and fiscal stimulus. The verdict on Abenomics is, of course, still out, although early indications are good. But how did this happen? David Pilling , writing in the FT, suggests that it was the double shock of the 2011 tsunami and China’s overtaking of Japan as the number 2 economy by market value. These shocks, he argues, broke through the fatalism and convinced the Japanese elite that something must be done. Long-time readers know that I once joked that what we needed in America was a fake threat from space aliens, which would jolt us into action on stimulus; '''if the aliens were later revealed as a hoax, no matter'''. Well, it looks as if Japan has found the moral equivalent of space aliens. Good for them." (emphasis added)</ref> If further attempts at artificial government-induced "stimulus" ''are'' attempted, Austrians argue that this pointless exercise would simply further distort capital structures throughout the economy. They therefore see the slump as curative, even if it results in bank runs and financial crises. They see light at the end of the depression, once the re-pricing of capital goods and financial assets returns the economy to a sound, stable footing - provided ''no bailouts occur, debts are liquidated and reduced or cancelled and provided asset prices are permitted to fall''.<ref>[http://www.zerohedge.com/news/guest-post-keynesian-solutions-after-total-failure-try-try-again Keynesian Solutions Total Failure]</ref><ref>[http://dailyreckoning.com/the-pain-of-restoring-investor-confidence/ The Pain of Restoring Investor Confidence], Bill Bonner</ref><ref>[http://dailyreckoning.com/government-spending-and-the-path-to-money-printing/ Government Spending and the path to Money Printing], Bill Bonner</ref><ref>[http://www.prudentbear.com/index.php/featuredcommentaryview?art_id=10485 Krugman Is Eating America Alive], Neeraj Chaudhary, Prudent Bear</ref><ref>[http://www.marketoracle.co.uk/Article25163.html Keynesian models], Robert Murphy</ref><ref>[http://krugman-in-wonderland.blogspot.com/2010/11/inflation-prisoner.html The Inflation Prisoner], William Anderson</ref><ref>[http://www.lewrockwell.com/north/north925.html Yes, Virginia, There Really Is a Free Lunch], Gary North</ref><ref>[http://mises.org/daily/5257/They-Want-Us-to-Love-the-Fed They Want Us to Love the Fed], William L. Anderson</ref><ref>[http://lewrockwell.com/rockwell/many-collapses-of-keynesianism189.html The Many Collapses of Keynesianism], Lew Rockwell,</ref>

Although there is active debate as to whether Keynesian "stimulus" policy (spending money and thereby indebting future generations, with the government spending debt-sourced money on projects the private sector would not touch) can actually help the economy long term,<ref>[http://www.mises.org/daily/6357/Feds-Policies-Expose-Mainstream-Fallacies Mainstream Fallacies], Frank Shostak</ref><ref>[http://www.zerohedge.com/news/guest-post-keynesian-solutions-after-total-failure-try-try-again Keynesian Solutions Total Failure]</ref><ref>[http://dailyreckoning.com/the-pain-of-restoring-investor-confidence/ The Pain of Restoring Investor Confidence], Bill Bonner</ref><ref>[http://dailyreckoning.com/government-spending-and-the-path-to-money-printing/ Government Spending and the path to Money Printing], Bill Bonner</ref><ref>[http://www.prudentbear.com/index.php/featuredcommentaryview?art_id=10485 Krugman Is Eating America Alive], Neeraj Chaudhary, Prudent Bear</ref><ref>[http://www.marketoracle.co.uk/Article25163.html Keynesian models], Robert Murphy</ref><ref>[http://krugman-in-wonderland.blogspot.com/2010/11/inflation-prisoner.html The Inflation Prisoner], William Anderson</ref><ref>[http://www.lewrockwell.com/north/north925.html Yes, Virginia, There Really Is a Free Lunch], Gary North</ref><ref>[http://mises.org/daily/5257/They-Want-Us-to-Love-the-Fed They Want Us to Love the Fed], William L. Anderson</ref><ref>[http://lewrockwell.com/rockwell/many-collapses-of-keynesianism189.html The Many Collapses of Keynesianism], Lew Rockwell,</ref> there is no argument that this would undoubtedly help the present group of private bankers, as increased income from the interest payments on new government bond issuance offsets the decline in private sector debt and allows banks to survive when otherwise they may face collapse due to the fatal impairment of their balance sheets through private debt write-offs after an unsustainable debt-fuelled bubble bursts.<ref>[http://georgewashington2.blogspot.com/2010/08/quantitative-easing-wont-help-economy.html QE won't help the economy]</ref><ref>[http://moneymorning.com/2010/11/19/federal-reserves-quantitative-easing-strategy-save-the-us-economy/ QE won't save the economy]</ref>

As government debt is effectively an asset on the books of the banks, increasing Treasury bond issuance necessarily increases the profitability and net asset position of the debt-issuing banks - at least until government insolvency or mass tax evasion renders the value of those bonds worthless.<ref>[http://www.marketoracle.co.uk/Article25313.html Asset Speculation and Capital Destruction], Jim Willie</ref><ref>[http://www.prudentbear.com/index.php/featuredcommentaryview?art_id=10485 Krugman Is Eating America Alive], Neeraj Chaudhary, Prudent Bear</ref>

Perhaps in recognition that increasing debt to solve a debt crisis does not work even in the short term, in early 2013 Krugman resorted to advocating the coining of a debt-free trillion dollar platinum coin to solve the debt crisis and revive the economy.<ref>[http://www.thenewamerican.com/economy/economics/item/14238-obama%E2%80%99s-trillion-dollar-coin-exposes-federal-reserve-scam Obama’s Trillion-Dollar Coin Exposes Federal Reserve Scam], Alex Newman, ''New American''</ref><ref>[http://webofdebt.wordpress.com/2013/01/18/the-trillion-dollar-coin-joke-or-game-changer/#more-5323 The Trillion Dollar Coin], Ellen Hodgson Brown</ref> Some Austrians have argued Krugman's support of the trillion dollar coin is the logical ''reductio ad absurdum'' of Keynesian economics.<ref>[http://bastiat.mises.org/2013/01/trillion-dollar-coins-and-alien-invasions/ Trillion Dollar Coins and Alien Invasions], Daniel Sanchez</ref>

===Inequities in the debt-based monetary system===
Many inequities arise because of the damage an overly leveraged financial system and big spending government can have on the real economy.<ref>[http://www.marketoracle.co.uk/Article26581.html Ten Reasons The Banksters Got Away With It], Danny Schechter</ref><ref>[http://www.marketoracle.co.uk/Article28949.html United States of Denial], James West</ref> The standard government strategy to help the banks out of the "tailspin" of an insolvency crisis follows a standard chronology:

The government first tries to stimulate the economy and spend money into the markets directly without individuals needing to borrow and spend, thereby "inflating" its way out of economic crisis by causing asset prices to rise and bank balance sheets to appear solvent. It currently does this principally by borrowing newly created money from the central bank and then spending this new money on projects that the private sector is not already engaged in.<ref>[http://www.marketoracle.co.uk/Article25964.html QE is Nothing New], Mike Hewitt</ref><ref>[http://www.mises.org/daily/6357/Feds-Policies-Expose-Mainstream-Fallacies Mainstream Fallacies], Frank Shostak</ref>

Unfortunately, there is no easy solution to an economy-wide insolvency crisis caused by excessive credit expansion.<ref>[http://www.zerohedge.com/news/2013-11-07/marc-faber-warns-karl-marx-was-right Karl Marx Was Right], Marc Faber</ref><ref>[http://www.prudentbear.com/index.php/creditbubblebulletinview?art_id=10511 Favorable or Unfavorable], Doug Noland, Prudent Bear</ref> In a sound money system the credit would not have been created, so dealing with the problem once created is inherently flawed. If a slow down of money and credit occurs, this exposes those who came late to the boom and transfers assets to the banking system via widespread insolvency. If the central bank encourages even more lending or the government spends more money this creates more distortions and uncertainties in the market, hampering long term investment. Government spending is often attempted as a way to stave off widespread insolvencies but this only further distorts the economy through widespread malinvestment.<ref>[http://mises.org/store/Rollback-P10449.aspx ''Rollback''], Thomas Woods</ref> Later, after the immediate crisis, when tax receipts from the private sector decline due to reduce private investment, governments are often forced to reduce basic social services or welfare to the poor to pay for the increased bond payments to bankers and other wealthy investors, making those least responsible and least able to pay for the crisis suffer wrenching economic hardship due to excessive public and private debt/credit creation.<ref>[http://www.marketoracle.co.uk/Article26581.html Ten Reasons The Banksters Got Away With It], Danny Schechter</ref><ref>[http://mises.org/store/Rollback-P10449.aspx ''Rollback''], Thomas Woods</ref>

Antal E. Fekete compares quantitative easing to the repeated supply of opium by an immoral drug dealer to a dependent drug addict:<ref>[http://www.marketoracle.co.uk/Article26339.html Silver and Opium], Antal E. Fekete</ref>

{{quote|The explanation for this self-destructing behavior is the addictive, debilitating and mind-corrosive nature of paper money, in direct analogy with that of opium. The high caused by administering the opium pipe to the patient (read: administering QE) had to be repeated when the effect faded by a fresh administration of more opium (read: more QE2).}}

Aside from the [[moral hazard]] issue, the key risk with [[quantitative easing]] is that the [[central bank]] exposes the financial system to disruptive inflation, as the growth in the [[money supply]] spirals out of control due to the need to save the [[bank]]s from themselves.<ref>[http://www.lewrockwell.com/north/north961.html Tiger], Gary North</ref><ref>[http://www.marketoracle.co.uk/Article27530.html The Fed Obliterates the Savings Ethic], Douglas French</ref> This eventually tends to precipitate a currency and/or government bond crisis, as the debt-based currency becomes completely dysfunctional when either the currency becomes worthless or when debtors - including government debtors - cannot even pay interest on the debt money.<ref>[http://www.marketoracle.co.uk/Article25964.html QE is Nothing New], Mike Hewitt</ref><ref>[http://www.marketoracle.co.uk/Article25313.html Asset Speculation and Capital Destruction], Jim Willie</ref><ref>[http://www.swlearning.com/economics/hall/hall-lieb2e-upd/ppt_lecture/exchange_rate_macro_policy.ppt Exchange Rates and Macroeconomic Policy]</ref><ref>[http://www.sciencedirect.com/science?_ob=ArticleURL&_udi=B6VGT-41WBFRG-1&_user=10&_rdoc=1&_fmt=&_orig=search&_sort=d&view=c&_acct=C000050221&_version=1&_urlVersion=0&_userid=10&md5=4e89075114dcdb58b503172ff1801bd2 Central Bank Intervention]</ref><ref>[http://www.federalreserve.gov/newsevents/speech/mishkin20071026a.htm Financial Instability and the Federal Reserve as a Liquidity Provider, by Frederic S. Mishkin]</ref>

For these reasons, a collapse in confidence in the [[solvency]] of the domestic banking system (and the central government) is one of the most complex and difficult policy issues any central government can face.<ref>[http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100008812/irelands-debt-servitude/ Ireland's Debt Servitude], Ambrose Evans-Pritchard, UK Telegraph</ref> If the central bank continues to try to save the current players in the banking sector by continually printing money and inflating its way out of the crisis, at some point hyperinflation suddenly appears, and has appeared many times in history.<ref>[http://mises.org/daily/4869 Can the Fed Become Insolvent?], Robert Murphy</ref><ref>[http://blog.mises.org/14626/quantitative-easing-explained/ Quantitative Easing Explained], YouTube video</ref>

Some commentators have observed that the media and the Fed have to constantly come up with new terms (such as "quantitative easing") to hide the fact that they are simply repeating the same failed policy of monetary inflation that corrupt sovereigns have deployed at the end of failed regimes many times over the millenia.<ref>[http://www.marketoracle.co.uk/Article25679.html Many Euphemisms for Money Creation], Thorsten Polleit</ref> This is also now referred to by some [[monetary reform]]ers and [[economist]]s as "socialism for the rich and capitalism for the poor", as many indebted [[consumers]] will still lose their [[house]]s and be declared [[bankrupt]] regardless whether or not the central bank intervenes to save marginal lenders who have been made [[insolvent]] through their mis-timing of the [[credit cycle]].<ref>[http://www.youtube.com/watch?v=ny6YI2JCP9Q&feature=player_embedded#at=147 Blood Starts Flowing on the Streets], Max Keiser interview with Gerald Celente</ref><ref>[http://www.rgemonitor.com/blog/roubini/228924/ Privatizing Profits and Socializing Losses, by Nouriel Roubini]</ref><ref>[http://www.beearly.com/pdfFiles/Satyajit%20Das.pdf Regulatory Debauchery by Satyajit Das]</ref> Future generations of innocent taxpayers may ultimately finance any [[bail out]] of reckless lenders, as the money used to fund any [[bail out]] will be funds diverted from the general revenue of the central government.<ref>[http://www.ft.com/cms/s/0/f4cf8426-654d-11dc-bf89-0000779fd2ac.html A run on the bank]</ref>

In times of crisis, some bankers still refer to [[Walter Bagehot]]'s 1873 commentary on monetary crises, ''Lombard Street'', in an attempt to gain insights into the way in which central bankers should revive illiquid banking systems.<ref>[http://www.prudentbear.com/index.php/thebearslairview?art_id=10513 The Evils of Crony Capitalism], Martin Hutchinson</ref><ref>[http://blogs.ft.com/economistsforum/2010/04/a-history-lesson-from-lombard-street-for-wall-street-in-2010/ History Lesson from Lombard Street], Roger Farmer, Ft.com</ref> However this old text may be outdated in circumstances where the community's debt limits have been reached and where the banking crisis arises from insolvency or environmental depletion rather than illiquidity.<ref>[http://www.youtube.com/watch?v=0KInB2rvgaY Eco Eco Disaster], Keiser Report</ref><ref name="Willie_Misdiagnosis" /><ref>[http://www.prudentbear.com/index.php/creditbubblebulletinview?art_id=10511 Favorable or Unfavorable], Doug Noland, Prudent Bear</ref> A prime example where aging demographics combined with reckless bank lending in a purely fiat debt-based monetary system resulted in economic problems which no amount of money printing or government spending could fix can be found in the case of the [[Japanese asset price bubble]].<ref>[http://www.economist.com/displaystory.cfm?story_id=10286992 The Japanese and American Bubbles: Been There, Done Some of That]</ref> Some believe the West will repeat the mistakes of the Japanese and the result will be worldwide monetary disorder and instability and economic decline.<ref>[http://dailyreckoning.com/destiny-is-demography/ Destiny is Demography], Bill Bonner</ref><ref>[http://www.economist.com/displaystory.cfm?story_id=10286992 The Japanese and American Bubbles: Been There, Done Some of That]</ref><ref>[http://www.prudentbear.com/index.php/creditbubblebulletinview?art_id=10508 Monetary Disorder], Doug Noland</ref><ref>[http://www.prudentbear.com/index.php/creditbubblebulletinview?art_id=10571 Crumbling Pillars], Doug Noland. Quote: "Whether it’s monetary or fiscal policy - at home or abroad – there seems to be confirmation everywhere that policymaking has become largely ineffectual and, increasingly, incapacitated. This is fundamental to my bearish thesis. With each passing market day it seems to take a greater leap of faith to believe that additional monetary and fiscal stimulus will ameliorate a sovereign debt crisis fomented by ultra-loose monetary and fiscal policies. Increasingly, it appears impossible for policies that fomented monetary instability to now somehow engender a return to market stability. Liquidity-challenged global markets are convulsing through a problematic period of de-risking and de-leveraging, and once such a process commences it basically has to run its course. Efforts to intervene in the marketplace, as we’ve been witnessing, are likely to beget only greater uncertainty and instability."</ref><ref>[http://www.youtube.com/watch?v=zbQq33iTsrw Rigged bank rates]</ref>

===Debt Saturation, Unstable Markets and the Keynesian Endpoint===

Keynesians often refer to Keynes' dictum "In the long run we are all dead" to justify artificially low interest rates and short-term stimulus spending by government to "kick start" a stalled economy where pre-existing private debt levels have caused spending to collapse. Tyler Cowen has responded to this Keynesian rejoinder with the following response:<ref>[http://www.nytimes.com/2011/03/06/business/06view.html The Fiscal Illusion], Tyler Cowan</ref>

{{quote|The famous Keynesian rejoinder, “In the long run we are all dead,” is less comforting when that long run comes into sight. Short-run planning is a hard carousel to stop, especially when there are frequent election cycles, but the federal government must act soon...

The technocratic Keynesian recommendation was to run deficits in bad times and surpluses in good times. But except for one stretch during the Clinton administration, this notion has been broken since the early 1980s. In the United States, at least, Keynesian economics has failed to find the necessary political institutions to enact and sustain a wise version of the theory.

Now that fiscal constraints are starting to bite, many politicians are afraid to reform or even to discuss changes in the largest problem areas...

Fiscal austerity may sometimes sound like a dogmatic religion, but fixed principles often help us do the right thing, especially when temptation beckons. Professor Buchanan argued that the real choice was between a religion of budget balance and a rule of illusion.

...the rigor of the numbers will soon sweep away the fiscal illusion. The only question is whether we will end the charade on our own terms or continue to play the fool.}}

Nassim Taleb posits that with increasing debt comes increasing fragility as markets end up standing on a "knife-edge" between precipitous currency devaluation due to money printing and widespread insolvency/depression due to slowing organic money supply growth.<ref>[http://www.zerohedge.com/news/2013-01-25/taleb-skin-game-and-his-disdain-public-intellectuals Nassim Taleb Interview on Anti-Fragile]</ref> It therefore becomes increasingly difficult for central banks to control volatility in heavily indebted world markets, until it ultimately becomes impossible to control.<ref>[http://www.zerohedge.com/news/2013-01-25/taleb-skin-game-and-his-disdain-public-intellectuals Nassim Taleb Interview on Anti-Fragile]</ref>

No current commentator predicts bankers, politicians or government employee unions will spontaneously reform themselves.<ref>[http://www.lewrockwell.com/lewrockwell-show/2011/03/27/193-gold-guns-and-getaway-plans/ Gerald Celente interview with Lew Rockwell]: Lew Rockwell: "When do you see social unrest coming to this country?" Gerald Celente: "I see more crime happening in this country, and social unrest at a much lower level. The people in this country don't have what it takes... This is a country of soccer mommies boys. We're prescription drug-addicted and we're junk food fat... Look at the way they dress, look at the way they talk, look how the Nation's become so Snooki-stupid."</ref> Noted commentator Bill Bonner and others have described politicians, welfare recipients, bankers and other tax beneficiaries as economic "zombies" obsessed with preserving their own coercively acquired incomes and unable to adapt to new economic realities. He has predicted that the "zombies" will continue to "steal" as much as possible and parasitically live off the productive efforts of others until the whole monetary system collapses.<ref>[http://dailyreckoning.com/the-coincidental-rise-of-oil-and-the-monetary-base/ The Coincidental Rise of Oil and the Monetary Base], Bill Bonner</ref><ref>[http://dailyreckoning.com/california-the-greece-of-the-us-financial-crisis/ California: The Greece of the U.S.], Bill Bonner</ref><ref>[http://dailyreckoning.com/zombies-born-of-government-spending/ Zombies Born of Government Spending], Bill Bonner</ref><ref>[http://www.zerohedge.com/article/not-program-salvage-greek-economy-its-program-pillage-bankruptcy Pillage Before Bankrupcty], Washington's Blog</ref> Some commentators have criticized so-called "zombie" bureaucracies such as the TSA as not only deadweights on the real productive economy, costing millions of tax dollars each year; their very existence hinders economic productivity.<ref>[http://mises.org/daily/5611/TSA-and-Unproductive-Labor TSA and Unproductive Labor], James E. Miller</ref> It is alleged that once these organizations are created and fed by government fiat, these "zombies" never die because there is no natural market mechanism to provide the necessary feedback signalling that they are unwanted by consumers. They grow only because they survive through government bureaucratic support and largesse - which comes from coercively acquired tax dollars or central bank produced fiat money. It is argued that the richest parasitic "zombies" (such as the CEOs and shareholders of the private security firms servicing the TSA's multi-million dollar government contracts) will continue to suck as much wealth from the productive economy as possible and then move on to the next host country with their real wealth converted into land, precious metals and jewels and other real assets.

The difficulty with any attempt at reform measures is that the "Ponzi" elements of finance are inextricably tied to pension funds and "real" elements in the economy, making it impossible to eliminate the "cancer" without damaging the wealth-creating structures as well.<ref>The term "cancer" is specifically mentioned in [http://www.pytheas.net/docs/Laissez-faire-and-policymakers.pdf Laissez-faire, investment banks and policy makers], Pytheas Market Focus, August 2009</ref><ref>[http://www.telegraph.co.uk/finance/comment/jeffrandall/8436123/We-must-call-the-bluff-of-the-big-bad-banks.html We must call the bluff of the big banks], Jeff Randall</ref><ref name="Repudiating the National Debt"/><ref>[http://www.youtube.com/watch?v=1zMv4Offm_8&feature=player_embedded#at=1341 Max Keiser Interview with Alex Jones]</ref><ref>[http://www.buildfreedom.com/tl/rape3.shtml Economic Rape of America]</ref><ref>[http://www.youtube.com/watch?v=zbQq33iTsrw Rigged bank rates]</ref> Commentator Max Keiser has also referred to "zombie" bankers as "The Walking Dead"<ref>[http://www.youtube.com/watch?v=23_S5etzSP0 Resident Evil Zombie Banks!]</ref> and has coined the term "Suicide Banking" to describe the paradoxical situation where virtually every politician and economist acknowledges that "Too Big To Fail" is a dysfunctional policy but no one has a viable solution, given that the banking system is "rigged to blow" if threatened.<ref>[http://www.youtube.com/watch?v=PCRXz5oOQVY&feature=player_embedded Suicide Bankers], Max Keiser</ref> He also refers to the current crisis as a fight to the death not between countries or ethnic groups or political ideologies but between future-oriented, prudent and conservative "Savers" on one side and present-focused, imprudent and overconsuming "Speculators" on the other.<ref>[http://www.youtube.com/watch?v=jzzIqi2sbQY&feature=player_embedded US flashing Orange]</ref>

Many non-mainstream financial commentators believe the U.S. and the E.U. will soon experience terminal financial crises, but there is vigorous on-going debate amongst numerous commentators regarding whether this terminal currency crisis will end in hyperinflation and currency destruction (making government bonds worthless) or repeated bouts of deflation and depression (making government bonds more valuable).<ref name="Landis_Reprieve" /><ref>[http://www.marketoracle.co.uk/Article28148.html How to Keep a Damaged Financial and Economic System Afloat?], Bob Chapman</ref><ref>[http://news.goldseek.com/GoldSeek/1305306000.php Winning in the Hyperinflation/Deflation War], Deepcaster LLC</ref><ref>[http://www.marketoracle.co.uk/Article27733.html Compound Inflation], John Mauldin</ref><ref>[http://www.lewrockwell.com/north/north973.html Rick Ackerman Defects], Gary North</ref><ref>[http://globaleconomicanalysis.blogspot.com/2011/04/no-miracle-cures-from-inflation.html Impossible to Inflate Out of this Mess], MISH</ref><ref>[http://globaleconomicanalysis.blogspot.com/2009/06/big-inflationist-scare.html The Big Inflationist Scare], MISH</ref><ref>[http://globaleconomicanalysis.blogspot.com/2010/09/debating-flat-earth-society-about.html Debating the Flat Earth Society About Hyperinflation], MISH</ref><ref>[http://globaleconomicanalysis.blogspot.com/2009/01/peter-schiff-was-wrong.html Peter Schiff Was Wrong], MISH</ref><ref>[http://www.marketoracle.co.uk/Article27726.html Deflation Threat is Still Alive], EWI</ref><ref>[http://www.marketoracle.co.uk/Article27791.html Can We Give The Hyperinflation Thing a Rest?], Mike Whitney</ref> Most - but not all - Austrian commentators now believe the denouement will inevitably result in hyperinflation and render the U.S. dollar near-worthless in real terms, as U.S. bond and dollar holders compete to offload excess holdings in the face of massive ongoing issuance.<ref>[http://www.marketoracle.co.uk/Article29393.html US Dollar Supply and Demand], Jim Willie CB</ref><ref>[http://fofoa.blogspot.com/2011/04/deflation-or-hyperinflation.html Deflation or Hyperinflation?], FOFOA</ref><ref>[http://maxkeiser.com/2011/04/25/ding-ding-ding-its-all-over-rick-ackerman-concedes-hes-been-wrong-and-joins-the-hyperinflationist-camp/ It's all over! Rick Ackerman Concedes!], Max Keiser</ref> Mike Shedlock and Antal E. Fekete are amongst a small group of deflationists who believe contracting credit will continue to have a deflationary impact on the economy, causing government bonds to become even more valuable over time.<ref>[http://globaleconomicanalysis.blogspot.com/2011/05/hyperinflation-nonsense-in-multiple.html Hyperinflation Nonsense], MISH</ref><ref>[http://globaleconomicanalysis.blogspot.com/2011/04/no-miracle-cures-from-inflation.html No Miracle Cures from Inflation], MISH</ref><ref>[http://www.julianmidwinter.com.au/ The Federal Reserve as an engine of deflation], Antal E. Fekete</ref><ref>[http://globaleconomicanalysis.blogspot.com.au/2012/08/preposterous-falsehoods-from-gary-north.html Falsehoods from Gary North], MISH</ref>

It should be noted that few hyperinflationists can explain the ''precise mechanism'' by which massive amounts of new credit money will be injected into the economy. There has been no detailed explanation from the hyperinflationists regarding how, with so few potential credit-worthy borrowers (including governments), the new money (via the issuance of new debt) will be injected into the economy in sufficient volume to trigger hyperinflation in the absence of extreme government policies (such Congress authorizing every citizen to be issued with $30,000 vouchers, or a civil war, or other natural catastrophe).<ref>[http://globaleconomicanalysis.blogspot.com/2011/09/bernankes-waterloo-midst-of.html Bernanke's Waterloo], Mike Shedlock</ref>

Gary North is one of the few Austrians who does not predict the extremes of either hyperinflation or deflationary depression, but rather expects a continuation of steady, moderate price inflation encouraged and controlled by the Federal Reserve, against a background of ongoing extreme boom-busts in the real economy and the slow but systemic impoverishment of the middle class.<ref>[http://lewrockwell.com/north/north1031.html Mass Inflation, Yes; Hyperinflation, No], Gary North</ref>

Austrian commentator Robert K. Landis believes there will be a combined deflationary/inflationary catastrophe.<ref>[http://www.goldensextant.com/SavingtheSystem.html Saving The System], Robert K. Landis</ref>

Leaving aside the debate between deflationists and hyperinflationists, and in stark contrast to the predictions of deflationary or hyperinflationary catastrophe from the Austrians, monetarist, Keynesian and neo-classical economists regard the current financial system as benign and the current financial distress as temporary and not structural in nature.<ref>[http://www.marketoracle.co.uk/Article35922.html Who do You Trust?], James Quinn</ref> Most advocate "tweaking" of government policy (such as temporary increases in government spending) to get us out of the current crisis. No mainstream economist identifies the problem as fundamental or structural and no mainstream economist advocates a return to full reserve banking, the gold standard or free banking. Indeed, most financial analysts still use the normal distribution - or "Bell Curve" - to represent the likely distribution of future returns in financial markets.<ref>[http://seekingalpha.com/article/163271-rethinking-alpha-and-beta Rethinking Alpha and Beta], Paul Amery</ref> This continues despite extensive research demonstrating that the normal distribution does not apply to financial market returns, which display so-called "fat tail" distributions, with much more volatlity at the extremes than the normal distribution would predict.<ref>[http://www.bearcave.com/bookrev/misbehavior_of_markets.html The Misbehavior of Markets], Ian Kaplan</ref> The Austrian view - that the economy will either slide into depression or hyperinflation under the stresses of the current debt-based monetary monetary system - may be supported by more recent analysis of actual financial market behavior under conditions of high debt and extreme stress.<ref>[http://mises.org/daily/5352/What-Mises-Can-Teach-the-Quants What Mises Can Teach the Quants], Daniel James Sanchez</ref><ref>[http://lewrockwell.com/north/north990.html The Next Financial Crisis], Gary North</ref><ref>[http://www.debtdeflation.com/blogs/2011/06/11/dude-where%E2%80%99s-my-recovery/ Where's My Recovery?], Steve Keen</ref> And recently even mainstream economists, such as senior IMF advisor Dr Robert Shapiro, now openly acknowledge that the inter-dependencies created by the issuance of Credit Default Swaps and other risk-related financial products by reckless under-capitalized banks has created a situation of extreme global financial vulnerability, where the world is only weeks away from a complete and total financial "meltdown".<ref>[http://maxkeiser.com/2011/10/07/imf-advisor-says-we-face-a-worldwide-banking-meltdown/ IMF Advisor Says We Face a Worldwide Banking Meltdown], BBC. Quote, Dr Robert Shapiro: "If they (EU governments) cannot address this in a credible way, I believe that in perhaps two to three weeks we will have a meltdown in sovereign debt which will produce a meltdown across the European banking system - we're not just talking about a relatively small Belgian bank - we're talking about the largest banks in the world - the largest banks in Germany, the largest banks in France - that will spread. It will spread to the United Kingdom - in part through sovereign debt problems in Ireland - it will spread ''everywhere'' because the global financial system is so inter-connected they are each counter...''all'' those banks are counter-parties to every significant bank in the United States and in Britain and in Japan and around the world! This would be a crisis that would be, in my view, more serious than the crisis in 2008."</ref> John Butler of Amphora has observed that "business cycles" have become "financial cycles" with central bank manipulation of markets, and these cycles have become increasingly violent and unstable, with shorter durations and increasing frequency.<ref>[http://maxkeiser.com/2013/05/16/kr445-keiser-report-sacred-dow/ Sacred Dow]</ref> To him, this signals the dying stages of a failed system, much like a spinning top slowing down and oscillating more frequently and more violently from side to side before coming to a sudden stop. According to John Butler, increases in stock prices are not a sign the economy is recovering, but is a sign of central bank-induced inflation - the first stages of currency collapse.<ref>[http://maxkeiser.com/2013/05/16/kr445-keiser-report-sacred-dow/ Sacred Dow]</ref>

Regardless whether the government chooses hyperinflation or periodic deflationary depression as the way out, throughout history, only two real alternatives occur in the midst of economic or financial crisis: ever greater centralization (often on a "higher level") or disintegration of the core power structures and (eventually) rejuvenation.<ref>[http://www.telegraph.co.uk/comment/columnists/janetdaley/8770696/The-European-dream-lies-in-ruins.html The European dream lies in ruins], Janet Daley, UK Telegraph</ref><ref>[http://www.zerohedge.com/article/greeces-ultimatum-bailout-bankers-or-loss-sovereignty Greece's Ultimatum], ZeroHedge</ref><ref>[http://www.lewrockwell.com/north/north966.html Wealth Through Decentralization], Gary North</ref><ref>[http://mises.org/store/Rollback-P10449.aspx ''Rollback''], Thomas Woods</ref><ref>[http://blog.mises.org/9321/crisis-and-leviathan/ Crisis and Leviathan], Robert Higgs</ref><ref>[http://mises.org/store/Money-Bank-Credit-and-Economic-Cycles-P290C0.aspx Money, Bank Credit and Economic Cycles], Jesus Huerta de Soto, Mises Institute ISBN: 978-1-933550-39-8</ref><ref>[http://mises.org/store/Meltdown-P557.aspx ''Meltdown''], Tom Woods, Regnery Press ISBN: 9781596985872</ref><ref>[http://mises.org/media/4014 The Economics of Legal Tender Laws], [[Jorg Guido Hulsmann]] (includes detailed commentary on centralization during crises)</ref><ref>[http://www.amazon.com/Warwolves-Iron-Cross-International-Relationships/dp/146358380X/ref=sr_1_33?ie=UTF8&qid=1316347713&sr=8-33 Warwolves of the Iron Cross], Veronica Kuzniar Clark</ref> Accordingly, many of the more extreme monetary reformers and [[conspiracy theorists]] anticipate repeated and ever more desperate attempts at ''higher-order centralization'',<ref>[http://www.telegraph.co.uk/comment/columnists/janetdaley/8770696/The-European-dream-lies-in-ruins.html The European dream lies in ruins], Janet Daley, UK Telegraph</ref><ref>[http://www.marketoracle.co.uk/Article27051.html A New World Currency?], Ellen Hodgson Brown</ref> as the existing co-ordinated state-based central bank architecture becomes discredited through repeated economic failure and environmental crises caused by the need for unsustainable exponential debt-driven economic "growth" within the current debt-based financial architecture.<ref>[http://www.zerohedge.com/article/guest-post-economic-abyss The Economic Abyss], Brandon Smith</ref> This centralization is anticipated to include the empowerment of the UN to increasingly intervene in the domestic political affairs of nations,<ref>[http://www.lewrockwell.com/rozeff/rozeff343.html World Government], Mike Rozeff</ref> the IMF and EU to increasingly intervene in the domestic financial affairs of member nations,<ref>[http://www.telegraph.co.uk/comment/columnists/janetdaley/8770696/The-European-dream-lies-in-ruins.html The European dream lies in ruins], Janet Daley, UK Telegraph</ref><ref>[http://www.zerohedge.com/article/greeces-ultimatum-bailout-bankers-or-loss-sovereignty Greece's Ultimatum], ZeroHedge</ref><ref>[http://globaleconomicanalysis.blogspot.com/2010/11/terms-of-enslavement-irish-citizens-say.html Terms of Enslavement], MISH</ref><ref>[http://globaleconomicanalysis.blogspot.com/2010/11/imf-ready-to-help-ireland-can-imf-help.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+MishsGlobalEconomicTrendAnalysis+%28Mish%27s+Global+Economic+Trend+Analysis%29 Can the IMF help anyone?], MISH</ref><ref>[http://www.telegraph.co.uk/finance/financialcrisis/8150137/Ireland-forced-to-take-EU-and-IMF-bail-out-package.html Ireland forced to take IMF bailout package], Telegraph</ref> and the declaration of [[martial law]] and the imposition of [[fascist]]-style restrictions on [[civil rights]]<ref>[http://www.zerohedge.com/article/guest-post-us-monetary-system-and-descent-fascism-interview-dr-edwin-vieira The U.S. Monetary System and Descent Into Fascism], Dr Edwin Vieir</ref><ref>[http://english.aljazeera.net/indepth/opinion/2011/04/201142612714539672.html Global capitalism and 21st cenury fascism], William I. Robinson</ref><ref>[http://www.lewrockwell.com/rep2/jesse-ventura-on-tsa-abusers.html Jesse Ventura on the TSA' Sexual Abusers]</ref> and [[freedom of speech]] by the political [[The Establishment|Establishment]] to physically protect it from [[anarchy]] or military [[coup]] when the [[bubble (economics)|bubble]] of debt completely bursts, through a precipitous currency crisis, debt-created [[Depression (economics)|depression]], environmental crisis or oil shortage.<ref>[http://www.marketoracle.co.uk/Article26605.html Population Reduction], Chris Kitze</ref><ref>[http://jsmineset.com/2011/02/24/in-the-news-today-791/ Collapse]</ref><ref>[http://www.lewrockwell.com/lewrockwell-show/2010/12/14/179-the-espionage-act-and-the-death-of-american-freedoms/ Death of American Freedoms], Naomi Wolf, LRC interview, Dec 14, 2010</ref><ref>[http://www.house.gov/paul/congrec/congrec2007/cr120507h.htm New security legislation threats freedoms]</ref><ref>[http://www.marketoracle.co.uk/Article26325.html Bank Credit Ends in Catastrophe], Richard Daughty, The Mogambo Guru</ref> Ultimately this is anticipated to yield either repressive world government<ref>[http://www.zerohedge.com/news/2013-01-31/guest-post-linchpin-lie-how-global-collapse-will-be-sold-masses The Linchpin Lie]</ref> or chaos (or most likely both), with a world central bank stationed in Basel, Switzerland.<ref>[http://www.zerohedge.com/news/2013-05-03/monarchs-money Monarchs of Money]</ref><ref>[http://www.youtube.com/watch?v=VMngK0t5WkY Max Keiser]</ref><ref>[http://www.marketoracle.co.uk/Article28533.html The Global Debt Crisis], Ellen Hodgson Brown</ref><ref>[http://www.marketoracle.co.uk/Article27051.html A New World Currency?], Ellen Hodgson Brown</ref><ref>[http://www.marketoracle.co.uk/Article27554.html Libya War All About Oil or Gold and Banking?], Ellen Hodgson Brown</ref><ref>[http://blog.mises.org/9321/crisis-and-leviathan/ Crisis and Leviathan], Robert Higgs</ref> During this transition period, some analysts and conspiracy theorists anticipate multiple wars to force governments into the BIS financial "net",<ref>[http://www.youtube.com/watch?v=VMngK0t5WkY Max Keiser]</ref><ref>[http://www.marketoracle.co.uk/Article28533.html The Global Debt Crisis], Ellen Hodgson Brown</ref><ref>[http://www.marketoracle.co.uk/Article27051.html A New World Currency?], Ellen Hodgson Brown</ref><ref>[http://www.marketoracle.co.uk/Article27554.html Libya Ware All About Oil or Gold and Banking?], Ellen Hodgson Brown</ref> impotent and counterproductive price controls,<ref>[http://globaleconomicanalysis.blogspot.com/2011/03/food-prices-rise-11-in-china-overall.html Chinese inflation], MISH</ref><ref>[http://www.lewrockwell.com/goyette/goyette18.1.html Too Late!], Charles Goyette</ref> repeated sell-offs of monopoly state assets in a desperate attempt to feed private domestic banks with steady, coercively acquired income to keep the value of government bonds collapsing,<ref>[http://globaleconomicanalysis.blogspot.com/2011/05/whos-bigger-socialist-president-obama.html Who's the Bigger Socialist?], MISH</ref> and then, once this attempt (to feed unsustainable compounding debt with any remaining basic infrastructure) destroys any remaining parts of the productive economy, there will be in the end coercively enforced rationing of basic essentials to ensure continued supply of food and oil to senior government officials, bankers and their associates amidst widespread general starvation and chaos,<ref>[http://www.technologyreview.com/blog/arxiv/27083/?p1=blogs Food prices and Riots]</ref><ref>[http://www.marketoracle.co.uk/Article26605.html Population Reduction], Chris Kitze</ref> as the coalescence of a corrupt banker-government coalition solidifies<ref>[http://www.zerohedge.com/news/2013-01-31/guest-post-linchpin-lie-how-global-collapse-will-be-sold-masses The Linchpin Lie]</ref><ref>[http://maxkeiser.com/2011/04/28/kr142-keiser-report-blind-cult-of-america/ Blind Cult of America]. Quote: Max Keiser: "Yes, it's beyond religious fervor. That's the point. It's become this echo chamber, cult-like 'America can't fail' which is very endemic when you see suicide cults. Remember Jim Jones. Remember him. The Kool Aid. He made the idea of drinking Kool Aid... he popularized that notion. Everyone committed suicide in Guyana. Or the Hail-Bot Comet Cult. Here you've got 300 million Americans who are worshiping this idea of 'American-style' Free Market Capitalism that doesn't exist. They support market manipulation on Wall Street and they're all gonna ''die'' as a result. Now that's less than 5% of the world's population. It is 25% of the world's garbage so the world will breathe a sigh of relief, but, as far as those living inside they don't really understand that they're being used as cult fodder." Stacy Herbert: "The equivalent of drinking the cyanide-laced Kool Aid would be purchasing a McMansion with a sub-prime mortgage. This is them committing suicide. It's the equivalent of drinking cyanide-laced Kool Aid." Max Keiser: "It's financial suicide. As we've talked about. Financialization of the economy has turned into this hybrid reality that combines political malfeasance with financial larceny and that's the combination between Obama's White House and Wall Street merging together into something even more insidious than fascism. It's a Klepto-F*@kingSh*tism. It's a... it's a Klepto-Sh*tism is the current political-financial school of thought in America today and it's not working. It's unsustainable."</ref> to eliminate potential dissent and ensure the forced elimination - by any means necessary - of any actual or potential competing [[currencies]] that could threaten the viability or legitimacy of the [[monopoly]] currency, which could include war against any country considering using any currency other than US dollars to price essential commodities such as oil <ref>[http://www.lewrockwell.com/holland/holland44.1.html Anglo-American Deception], Ron Holland</ref> and the compulsory confiscation of all privately-owned [[gold]] (gold being the ultimate reserve currency, still used by central banks as a universally accepted medium of exchange for the settlement of international debts).<ref>[http://mises.org/daily/5184/The-Crime-of-Private-Money The "Crime" of Private Money], Robert Murphy</ref><ref>[http://www.zerohedge.com/article/guest-post-thoughts-liberty-dollar-debacle Liberty Dollar], ZeroHedge.com</ref><ref>[http://blog.mises.org/14795/the-gold-clause-cases-and-constitutional-necessity/ Gold Clause Cases]</ref><ref>[http://news.goldseek.com/GoldSeek/1196605589.php America's Trade Debts Lead to a Likely Gold Confiscation]</ref><ref>[http://www.libertydollar.org/ld/legal/raid.htm FBI Raids Liberty Dollar]</ref><ref>[http://www.lewrockwell.com/rothbard/solution.html The Solution]</ref><ref>[http://prudentinvestor.blogspot.com/2007/09/us-mint-suspends-gold-coin-sales-due-to.html US Mint Suspends Gold Coin Sales]</ref><ref>[http://www.swissamerica.com/article.php?art=06-2004/200406140537f.txt Why a Gold Standard Now?]</ref><ref>[http://www.lewrockwell.com/blog/lewrw/archives/73468.html Bank of America an arm of US government policy]</ref><ref>[http://www.marketoracle.co.uk/Article26325.html Bank Credit Ends in Catastrophe], Richard Daughty, The Mogambo Guru</ref><ref>[http://www.sovereignman.com/expat/bernanke-terrorist Bernanke is the domestic terrorist], Sovereign Man</ref><ref>[http://www.marketoracle.co.uk/Article28225.html DSK Was Trying to Torpedo the Dollar], Mike Whitney</ref>

Some have speculated that the overthrow and attempted assassination of Col. Gaddafi and his family in 2011 Libyan "civil war" was triggered by Col. Gaddafi's open (and unwise) attempt to price Libya's oil in gold, which is the reaction many would expect for a country that "dared" to price an essential commodity in anything other than a Western paper currency.<ref>[http://www.youtube.com/watch?v=GuqZfaj34nc&feature=player_embedded#! Gaddafi: Gold for Oil?], RTTV</ref><ref>[http://www.youtube.com/watch?v=8lnslMWhOTw&list=SPC3F29DDAA1BABFCF&index=194 Welcome Home German Gold], Max Keiser</ref>

There have been many [[financial crisis|monetary crises]] throughout history.<ref>[http://www.zerohedge.com/news/2013-02-26/trust-me-time-different Trust Me This Time Is Different]</ref><ref>[http://www.delanion.com/main/dom.htm Fiat Money Inflation in France], Gold Money video featuring Max Keiser, James Turk and Pierre Jovanovic</ref><ref>[http://www.delanion.com/main/dom.htm Dying of Money], Jens O. Parsson</ref><ref>[http://www.delanion.com/main/dom.htm Dying of Money], Jens O. Parsson</ref><ref name="Bonner_Swan">[http://www.lewrockwell.com/bonner/bonner454.html Revolution in Egypt and Black Swans], Bill Bonner, February 15, 2011.</ref><ref>[http://news.goldseek.com/GoldSeek/1297199137.php China Inflation and Gold], Darryl Robert Schoon</ref><ref>[http://mises.org/store/Early-Speculative-Bubbles-P578.aspx Early Speculative Bubbles and Increases in the Money Supply], Doug French, Mises Institute ISBN: 978-1-933550-44-2</ref><ref>[http://dailyreckoning.com/a-word-of-advice-to-financial-authorities/ Advice to Financial Authorities], Bill Bonner</ref><ref>[http://www.marketoracle.co.uk/Article26325.html Bank Credit Ends in Catastrophe], Richard Daughty, The Mogambo Guru</ref> Some commentators have noted that our present system and the strategies attempted by governments to reflate the economy closely resemble the failed theories of John Law and the Mississippi bubble of the early 18th century.<ref>[http://www.economist.com/node/14215012 Law of easy money], ''The Economist''</ref> There are a number of standard warning signs of impending depression or hyperinflation caused by a complete breakdown of trust in any [[monetary system]].<ref>[http://mises.org/store/Product.aspx?ProductId=435 Fiat Money Inflation in France], Andrew Dickson White, Mises Institute</ref><ref>[http://www.marketoracle.co.uk/Article25313.html Asset Speculation and Capital Destruction], Jim Willie</ref><ref>[http://www.zerohedge.com/article/guest-post-economic-abyss The Economic Abyss], Brandon Smith</ref><ref>[http://lewrockwell.com/orig12/martenson8.1.1.html Argentina: A Case Study], Chris Martenson and FerFAL</ref> Just prior to the complete collapse of the [[pyramid scheme]] of public and private debt, the economic system tends to feed on itself, and in the past, where debt-created [[Depression (economics)|depression]]s or periods of [[hyperinflation]] have occurred in [[Europe]],<ref name="Bonner_Swan" /> the [[U.S.]] and [[China]], there has been a sustained spike in predatory economic behavior, as the heavily indebted central government and producers are forced to find more extreme (previously considered unethical) methods to extract any remaining wealth from increasingly desperate and impoverished [[consumers]], who are either unwilling or unable to go into further debt without forceful coercion.<ref>[http://www.zerohedge.com/article/guest-post-ethics-mortgage-loan-default The Ethics of Mortgage Loan Default], Greg Lemelson</ref><ref name="Bonner_Swan" /><ref name="http">{{cite book |last= Widdig |first= Bernd |title= Culture and Inflation in Weimar Germany |url= http://books.google.com/books/ucpress?id=kvKAATycUzIC |accessdate= 2007-12-16 |year= 2001 |publisher= University of California
Press |isbn= 0520222903 }}</ref><ref>[http://mises.org/daily/3569 John Law and the Invention of Modern Finance], Doug French (Mises.org)</ref><ref>[http://mises.org/daily/1690 The Saga of John Law and Richard Cantillon], Sean Corrigan (Mises.org)</ref> [[Long-term]] investment and sustained [[capital investment]] are almost impossible in this environment because the "measuring stick" of [[return on investment]] (the real value of [[money]]) is so uncertain at times of debt-induced [[credit crunch]], depression or hyperinflation.<ref>[http://www.marketoracle.co.uk/Article25313.html Asset Speculation and Capital Destruction], Jim Willie</ref>

As potential new [[borrower]]s and international financiers are scared away from participating in the [[pyramid scheme]] of debt and borrowing further, the [[monetary system]] seizes up, starved of the fresh injections of [[debt money]] it needs for its survival, thereby precipitating economic [[anarchy]],<ref name="Bonner_Swan" /><ref>[http://www.zerohedge.com/article/guest-post-economic-abyss The Economic Abyss], Brandon Smith</ref> widespread [[lawlessness]]<ref name="Bonner_Swan" /> and [[insolvency]] of the monetary and banking system.<ref>[http://www.youtube.com/watch?v=FPxYg6mgGpE Inflation is There], Peter Schiff</ref><ref>[http://www.oftwominds.com/blognov07/empire-debt1.html Empire of Debt]</ref><ref name="Landis_Reprieve" /><ref>[http://www.marketoracle.co.uk/Article25313.html Asset Speculation and Capital Destruction], Jim Willie</ref><ref name="Bonner_Swan" /> Some have described the moment when governments cannot borrow any more from banks to keep up the growth in debt money as the "Keynesian Endpoint" or "Keynesian Endgame" or point of "Debt Saturation" - which is the point in time when ''in extremis ''"emergency" measures by the government to kick-start the economy by increasing total gross debt have no lasting positive effect on GDP.<ref>[http://www.zerohedge.com/article/guest-post-economic-death-spiral-has-been-triggered The Economic Death Spiral], Gordon T. Long</ref><ref>[http://www.zerohedge.com/article/charting-ten-year-prelude-keynesian-endgame Keynesian Endgame], ZeroHedge</ref><ref>[http://en.wikipedia.org/wiki/Keynesian_endpoint Keynesian Endpoint], Wikipedia definition</ref><ref>[http://www.marketoracle.co.uk/Article27801.html U.S. Debt Saturation and Money Illusion], Gordon T. Long</ref> Antal E. Fekete identifies this "crisis" point as the point when the marginal increase in total gross debt has no positive marginal effect on GDP.<ref>[http://www.professorfekete.com/articles/AEFGotterdammerung.pdf Gotterdammerung], Antal E. Fekete</ref> According to Professor Fekete, once the marginal productivity of debt turns negative, a disastrous depression is inevitable.<ref>[http://www.professorfekete.com/articles/AEFGotterdammerung.pdf Gotterdammerung], Antal E. Fekete</ref>

Recent studies have indicated that debt turns toxic at between 80 and 100 percent of GDP. Beyond this, further increases in debt reduce GDP rather than stimulate it.<ref>[http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100011744/when-debt-levels-turn-cancerous/ When Debt Levels Turn Cancerous], Ambrose Evans-Pritchard</ref>

This final denouement is triggered when [[borrower]]s cannot be found to buy depreciating, already-indebted, assets, and international financiers reduce lending as they experience losses on pre-existing loans either through asset or currency [[depreciation]].<ref>[http://www.youtube.com/watch?v=FPxYg6mgGpE Inflation is There], Peter Schiff</ref> Some analysts predict that the [[monetary system]] will seize up due to a [[deflationary]] depression<ref>[http://www.zerohedge.com/article/guest-post-heres-setup-con-decade The Con of the Decade], ZeroHedge</ref> or a sustained period of [[stagflation]]ary hyperinflation resulting in a "final and total catastrophe of our fiat monetary system."<ref name="Landis_Reprieve" /><ref>[http://www.marketoracle.co.uk/Article25313.html Asset Speculation and Capital Destruction], Jim Willie</ref><ref>[http://www.youtube.com/watch?v=FPxYg6mgGpE Inflation is There], Peter Schiff</ref><ref>[http://www.marketoracle.co.uk/Article27402.html Deflationists Blind to Inflationary Storm], Jim Willie</ref><ref>[http://www.marketoracle.co.uk/Article27466.html Compounding Debt]</ref>

Examples of debt and monetary crises can often be found after failed wars, when international financiers realize the heavily indebted [[government]] they funded will not gain the resources it planned to seize as a result of the waging of aggressive war. When this pay-off does not materialize, the losing government is left with the debt of war without the ability to offset this government debt through the imposition of reparations on the defeated nation and the acquisition of the defeated state's resources, thereby boosting the victorious state's GDP and tax revenues. This sudden monetary collapse occurred to [[Germany]] after the [[First World War]] and [[Japan]] after the [[Second World War]].

Whatever the trigger, the key warning sign of any impending monetary crisis and economic [[anarchy]] is a sudden [[currency crisis]], or a sudden spike in domestic interest rates, or a sudden [[credit crunch]] or the announcement of a bank holiday.<ref>[http://mises.org/daily/6400/Lessons-from-Cyprus Lessons from Cyprus]</ref><ref name="Landis_Reprieve" /> Early warning signs that the [[private banks]] themselves are aware of an impending breakdown in the [[solvency]] of the [[financial system]] would be any combination of some or all the following: a spike in the [[oil]] price (which is an internationally accepted, inherently limited, store of value, and therefore can act as a modern form of [[hard currency]], oil sometimes being referred to as "black gold"), "backwardation" in [[gold]],<ref>[http://www.zerohedge.com/news/2013-02-22/gold-and-potential-dollar-endgame-part-3-backwardation-and-gold Gold and the Potential Dollar Endgame]</ref><ref>[http://www.minyanville.com/businessmarkets/articles/gold-spot-price-gold-prices-gold/5/10/2011/id/34441?camp=syndication&medium=portals&from=yahoo Permanent Gold Backwardation: Why a "Crack Up Boom" Is Inevitable], Keith Weiner</ref> and [[silver]]<ref>[http://www.youtube.com/watch?v=021yEhjPDa0&feature=player_embedded#at=826 $400 Ounce Silver, $8000 Ounce Gold], James Turk</ref><ref>[http://www.youtube.com/watch?v=FPxYg6mgGpE Inflation is There], Peter Schiff</ref> and sudden price spikes in other stable, non-perishable, inherently limited [[natural resources]] essential for non-discretionary industrial production;<ref>[http://www.marketoracle.co.uk/Article25313.html Asset Speculation and Capital Destruction], Jim Willie</ref> a spike in the [[futures contract]]s for vital agricultural [[commodities]]<ref>[http://www.marketwatch.com/story/fed-dictator-bernanke-needs-to-be-toppled-2011-02-15 Fed dictator Bernanke needs to be toppled], Paul B. Farrell</ref><ref>January 27, 2011 – ''Financial Times'' (Javier Blas and Chris Giles): “Governments across the developing world are stockpiling food staples in an attempt to contain panic buying, inflation and social unrest. But the hoarding is driving agricultural commodity prices even higher. The cost of wheat, the world’s most important staple, reached a fresh two-and-a-half-year high on Thursday, after countries from Algeria to Saudi Arabia announced extraordinary purchases. High food prices have been a contributing factor to the recent wave of social unrest across North Africa and the Middle East. In Algeria earlier this month, young rioters chanted ‘Bring us sugar!’ The cost of the sweetener in the wholesale market is at its highest in 30 years. Earlier this week, Algeria bought 800,000 tonnes of wheat – much more than usual – and Saudi Arabia announced plans to double the size of its wheat stockpile. Bangladesh and Indonesia joined the rush on Thursday, placing extraordinary on rice orders.”</ref> such as [[sugar]],<ref>[http://www.bloomberg.com/news/2010-12-15/portugal-tries-to-prevent-sugar-hoarding-amid-shortage-ft-says.html 2010 Portugal Sugar Crisis]</ref> [[corn]], [[wheat]], [[soybean]]s and [[rice]], as investors realize the debt-based monetary system has squeezed supplies of [[arable land]];<ref>[http://webofdebt.wordpress.com/2011/02/03/the-egyptian-tinderbox-how-banks-and-investors-are-starving-the-third-world/#more-1052 Banks and investors are starving the Third World], Ellen Hodgson Brown</ref><ref>[http://www.preparednesspro.com/blog/food-shortage-series-part-1/ Food Shortage Series],Kellene Bishop</ref><ref>[http://www.smh.com.au/environment/world-hungers-for-more-food-20110402-1csbh.html World hungers for more food], Sydney Morning Herald,</ref> a sudden flight of money ''to'' [[Treasury bills]] and/or a sudden spike in the [[interest rate]] differential between short-term [[Treasury bills]] and asset-backed corporate paper (or a sudden spike in the [[LIBOR]] rate in [[London]])<ref name="Landis_Reprieve" /><ref>[http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/12/03/cnrates103.xml&CMP=ILC-mostviewedbox Pleas for rate cut as interbank loans dive]</ref> - and then, in the very late stages of a credit crisis, a sudden and disorderly flight of money ''away from'' government bonds and a "shock" or "panic" collapse in government bond prices, as banks perceive that some governments will ultimately find it ''impossible'' to pay interest on their debt from coercively acquired taxes.<ref>[http://www.youtube.com/watch?v=SgNLTb58K_Y S&P Rating on US Sovereign Debt not Low Enough], Peter Schiff</ref><ref>[http://www.telegraph.co.uk/finance/economics/8190059/Global-bond-rout-deepens-on-US-fiscal-worries.html Global bond rout], Ambrose Evans-Pritchard, UK Telegraph</ref><ref>[http://www.prudentbear.com/index.php/thebearslairview?art_id=10480 When Will The U.S. Become Greece?], Michael Hutchinson</ref>

Shortly thereafter, some [[monetary reform]]ers predict that there would be desperate, but ultimately futile [[central bank]] intervention involving massive, repeated bouts of "quantitative easing",<ref>[http://www.zerohedge.com/article/did-fed-its-stealthy-synthetic-bet-keep-yields-low-become-next-aig Doubling Down], ZeroHedge</ref> then a [[currency crisis]],<ref>[http://www.zerohedge.com/article/jim-grant-inflation-there-will-be-lot-it-suddenly-because-our-interest-rate-structure-beyond Jim Grant on Inflation], ZeroHedge</ref> then a panic run on a number of marginal, [[insolvent]] [[banks]] and [[hedge funds]] as desperate wealthy investors try to get [[cash]] out before the [[pyramid scheme]]<ref>[http://www.youtube.com/watch?v=FPxYg6mgGpE Inflation is There], Peter Schiff</ref> collapses to invest in inherently limited, non-perishable, in-demand commodities such as [[oil]] and [[gold]]<ref>[http://www.professorfekete.com/articles/AEFAmericanBasesGermanyGoldBasis.pdf The Gold Basis], Antal E Fekete]</ref><ref>[http://www.zerohedge.com/article/golden-tipping-point-university-texas-takes-delivery-1-billion-physical-gold A Golden Tipping Point], ZeroHedge</ref><ref>[http://www.youtube.com/watch?v=FPxYg6mgGpE Inflation is There], Peter Schiff</ref><ref>[http://www.marketoracle.co.uk/Article25313.html Asset Speculation and Capital Destruction], Jim Willie</ref> (and undeveloped agricultural and industrial [[land]] in areas of the world with strong [[economic growth]]),<ref>[http://www.nytimes.com/2011/03/04/business/04farms.html?_r=1&hp Price of Farmland] NYTimes</ref> followed by a [[recession]] or [[depression]] in the broader heavily indebted economy as [[money supply|credit]] contracts but base money continues to rise exponentially.<ref>[http://www.marketoracle.co.uk/Article27172.html Why QE has NOT brought back inflation], EWI</ref><ref name="Landis_Reprieve" /><ref>[http://www.marketoracle.co.uk/Article25313.html Asset Speculation and Capital Destruction], Jim Willie</ref><ref>[http://www.newyorkfed.org/research/staff_reports/sr291.pdf Hedge Funds, Financial Intermediation and Systemic Risk]</ref><ref>[http://jsmineset.com/2011/02/24/in-the-news-today-791/ Collapse]</ref><ref>[http://www.marketoracle.co.uk/Article27596.html US Accelerating Inflation Mega-Trend], Nadeem Walayat</ref>

Historically, during periods of monetary disorder, a predator-prey mentality generally grips society, with parasitic or predatory activity being witnessed, eating away at the last vestiges of the middle class.<ref>[http://www.goldonomic.com/When%20Money%20Dies.pdf When Money Dies], Adam Fergusson</ref> In such circumstances the following activities continue to be profitable and proliferate during monetary disorder: international banking and financial services to the wealthy elite, to assist in secreting their assets outside the jurisdiction; drug trafficking and distribution to ease the psychological stress on those slipping down the social ladder into poverty and homelessness; security and protection services to the wealthy; entertainment services to the wealthy, including gambling, prostitution (male, female and child) and "exclusive" nightclubs and bars servicing the wealthy; luxury imported goods and services; military and defense contracting and procurement (as a form of high-level security services for elite government employees), propaganda and media services defending and glorifying and legitimizing the State; and all forms of coercive government activity generally (as the tendency towards fascist-style controls feeds on itself in a positive feedback loop around a triangle of increasing government employee numbers scared away from the shrinking private sector, a banking industry supporting government jobs and big business and defense contracting supporting and feeding both).<ref>[http://www.zerohedge.com/news/2013-05-22/greek-prostitution-soars-150-youth-unempoyment-hits-75-some-areas Greek Prostitution Soars By 150%]</ref><ref>[http://www.goldonomic.com/When%20Money%20Dies.pdf When Money Dies], Adam Fergusson</ref><ref>[http://books.google.com.au/books?id=kvKAATycUzIC&pg=PA197&lpg=PA197&dq=prostitution+modernism+weimar+germany+hyperinflation&source=bl&ots=DaJiHnllDu&sig=Acfme5660DBUC6Xw5XLdoke5IE4&hl=en&ei=fOB1Tor1BsXRmAWSoYn0DA&sa=X&oi=book_result&ct=result&resnum=5&ved=0CD4Q6AEwBDgK#v=onepage&q&f=false Culture and Inflation in Weimar Germany], Bernd Widdig</ref><ref>[http://www.businessinsider.com/finance-guy-in-london-explains-how-to-order-cocaine-from-a-restaurant-2011-9#ixzz1Y2MQUyzJ London Banker explains how to order cocaine from London restaurant]</ref><ref>[http://www.alternet.org/story/152446/inside_the_trillion-dollar_underground_economy_keeping_many_americans_%28barely%29_afloat_in_desperate_times?page=entire Inside the Underground Economy]</ref>

It should be noted that in 2011 banks started paying police directly, presumably to ensure protection from the public should widespread protests commence against their alleged [[embezzlement]] activities.<ref>[http://lewrockwell.com/wenzel/wenzel132.html Banksters Running Scared]</ref>

In 2010 Ireland and Greece experienced similar financial crises along the lines described above and many financial commentators and politicians expect more countries to go through the same debt crisis.<ref>[http://globaleconomicanalysis.blogspot.com/2010/12/video-fire-bombs-stones-fly-in-greek.html Greek protests]</ref><ref>[http://www.youtube.com/watch?v=2gm9q8uabTs "Who the Hell do you think you people are?"], Nigel Farage, UKIP leader</ref><ref>[http://www.marketoracle.co.uk/Article25313.html Asset Speculation and Capital Destruction], Jim Willie</ref> In 2011, Tunisia experienced a financial and political crisis that was almost identical to those already experienced on the poorer European periphery, except that in this case the pre-existing political establishment quickly fled the country in fear for their safety - with some allegations that the wife of the deposed leader, Leila Trabelsi, ordered the country's central bank to transfer 1.5 tonnes of [[gold]] to Zine El Abidine Ben Ali and his family.<ref>[http://www.marketoracle.co.uk/Article25636.html We are all Tunisians], Yvonne Ridley</ref><ref>[http://www.heraldsun.com.au/news/breaking-news/tunisia-missing-15-tonnes-of-gold/story-e6frf7jx-1225992107457 Tunisia missing 1.5 tonnes of gold], Herald Sun</ref> The Egyptian uprising resulted in Hosni Mubarek fleeing after desperate attempts were made by him and his associates to preserve his family's wealth and power.<ref>[http://news.yahoo.com/s/ap/20110212/ap_on_re_mi_ea/ml_egypt_mubarak_s_final_hours Mubarak's final hours], Associated Press</ref> Several newspapers have reported that, once again, appropriating the nation's gold reserves was a major priority for the fallen leader.<ref>[http://www.smh.com.au/world/mubaraks-lastminute-rush-to-hide-his-billions-20110213-1as1c.html Mubarak's Rush to Hide Billions], SMH</ref> Following the overthrow of the ruling elites in Tunisia and Egypt, other North African countries have experienced similar uprisings - all attributable to higher food prices, according to some noted commentators,<ref>[http://www.telegraph.co.uk/finance/economics/8492078/How-the-Fed-triggered-the-Arab-Spring-uprisings-in-two-easy-graphs.html How the Fed triggered the Arab Spring uprisings], Andrew Lilico</ref> who have accused Fed Chairman Ben Bernanke of literally having "blood on his hands" due to the encouragement of food price inflation via sustained inflationary loose-monetary policies.<ref>[http://globaleconomicanalysis.blogspot.com/2011/01/blood-on-bernankes-hands-riots-in-egypt.html Blood on Bernanke's Hands], MISH</ref><ref>[http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2011/4/6_Marc_Faber_-_Mr._Bernanke_is_a_Murderer_of_the_Middle_Class.html Marc Faber calls Mr Bernanke a Murderer of the Middle Class], King World News</ref><ref>[http://www.youtube.com/watch?v=V3NdUU1wWa4&feature=player_embedded#at=89 Max Keiser - Bernanke is a Murderer]</ref><ref>[http://dailyreckoning.com/lessons-from-egypt-for-the-american-people/ Lessons from Egypt], Charles Kadlec</ref><ref>[http://www.marketwatch.com/story/fed-dictator-bernanke-needs-to-be-toppled-2011-02-15 Fed dictator Bernanke needs to be toppled], Paul B. Farrell</ref><ref>[http://mises.org/daily/5050/QE2-Fuels-a-Global-Fury QE2 Fuels a Global Fury], Mark Thornton</ref><ref>[http://www.zerohedge.com/article/bernanke-blame-rising-global-revolutionary-wave?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+zerohedge%2Ffeed+%28zero+hedge+-+on+a+long+enough+timeline%2C+the+survival+rate+for+everyone+drops+to+zero%29 Is Bernanke To Blame?], Tyler Durden, ZeroHedge</ref> The central banker has denied that his inflationary loose-monetary policies have contributed to food inflation and Chicago Fed President Charles Evans has called for ''even more'' quantitative easing and inflation as a way out of the on-going crisis, despite previous attempts having failed to stimulate the economy.<ref>[http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/8302111/Fed-chief-Ben-Bernanke-denies-US-policy-behind-record-global-food-prices.html Ben Bernanke Denies US Policy Behind Food Price Inflation], UK Telegraph, 3 February 2011</ref><ref>[http://www.zerohedge.com/news/evans-goes-full-qetard-tells-hilsenrath-fed-needs-do-much-more-easing Chuckie Evans Goes Full QEtard]</ref> Implicit in Mr Bernanke's and Mr Evan's argument is the assumption that the central bank can create "good" inflation in some markets and avoid "bad" inflation in others. This alleged central bank power to direct good inflation and abate bad inflation is derided by a number of commentators.<ref>[http://www.youtube.com/watch?v=V3NdUU1wWa4&feature=player_embedded#at=89 Max Keiser - Bernanke is a Murderer]</ref><ref>[http://globaleconomicanalysis.blogspot.com/2011/01/blood-on-bernankes-hands-riots-in-egypt.html Blood on Bernanke's Hands], MISH</ref><ref>[http://dailyreckoning.com/lessons-from-egypt-for-the-american-people/ Lessons from Egypt], Charles Kadlec</ref><ref>[http://www.marketwatch.com/story/fed-dictator-bernanke-needs-to-be-toppled-2011-02-15 Fed dictator Bernanke needs to be toppled], Paul B. Farrell</ref><ref>[http://www.zerohedge.com/article/bernanke-blame-rising-global-revolutionary-wave?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+zerohedge%2Ffeed+%28zero+hedge+-+on+a+long+enough+timeline%2C+the+survival+rate+for+everyone+drops+to+zero%29 Is Bernanke To Blame?], Tyler Durden, ZeroHedge</ref><ref>[http://www.marketoracle.co.uk/Article28587.html QE2 Unmitigated Failure], James Quinn</ref><ref>[http://www.marketoracle.co.uk/Article28998.html The Great Misdiagnosis], Jim Willie CB</ref>

Noted British ''Telegraph'' commentator Ambrose Evans-Pritchard has called these the first Malthusian "Food Revolutions" of the modern era, as "agflation" causes political instability on the periphery of major economies worldwide - particularly those countries that have already denuded their agricultural base and have to import grain and other foods to survive.<ref>[http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/8291470/Egypt-and-Tunisia-usher-in-the-new-era-of-global-food-revolutions.html A New Era of Food Revolutions], Ambrose Evans-Pritchard</ref><ref>[http://jsmineset.com/2011/02/24/in-the-news-today-791/ Collapse]</ref>

It is also reported that very complex, delicate negotiations are taking place between debtor and creditor nations to swap government bonds with gold at prices far in excess of the declared "market price" of gold.<ref>[http://www.marketoracle.co.uk/Article25878.html China Buys European Gold], Jim Willie</ref> These so-called "off-market" deals - and possible diversions of government-owned gold to corrupt bankers and political leaders - are signs the Keynesian Endpoint has arrived and the politicians and bankers recognize they have lost control of the economic system and must focus on saving themselves.<ref>[http://lewrockwell.com/wenzel/wenzel113.html Fort Knox Gold], Robert Wenzel</ref><ref>[http://www.marketoracle.co.uk/Article25878.html China Buys European Gold], Jim Willie</ref> Max Keiser reports that it appears powerful nations will negotiate repatriation of their gold and smaller nations will either have to accept their gold is lost or face war if they attempt to repatriate their own gold home.<ref>[http://www.youtube.com/watch?v=8lnslMWhOTw&list=SPC3F29DDAA1BABFCF&index=194 Welcome Home German Gold], Max Keiser</ref> Germany and other countries have started to slowly repatriate their gold in anticipation that gold may not be available at any price in future.<ref>[http://www.lewrockwell.com/spl5/fed-short-germanys-gold.html What if the Fed is Short Germany's Gold?]</ref><ref>[http://lewrockwell.com/thomas-jeff/thomas-jeff16.1.html The Disappearing Gold]</ref>

Finally, it should be noted that, with the collapse of Tsarist Russia, the establishment of the fifth and final central bank of the United States, the destruction of the fiat-issuing fascist regimes in Italy, Germany and Japan post-WWII, and the collapse of communism in the 1990s, there no longer exists any major economy where the banking system is fully government-owned or has any strictly enforceable social responsibilities beyond pure profit motive. All major world economies have now adopted essentially the same monetary system, with profit-driven private banks (government-licensed institutions legally permitted to engage in unlimited credit creation) able to pocket profits during upswings and socialize losses during downswings by use of central bank asset swaps. If critics are correct that all such systems are doomed to severe boom-bust cycles because of excessive expansion of speculative credit and endemic [[moral hazard]], it is to be expected that all major economies will also experience essentially the same kind of environmental and food crises, and even allegedly "strong" economies such as China will experience severe economic downturns at some stage.<ref>[http://mises.org/daily/5070/Bust-Looms-As-China-Booms Bust Looms], Markus Bergstrom</ref><ref>[http://globaleconomicanalysis.blogspot.com/2011/03/bloodstained-property-map-and-trampled.html Bloodstained Property Map], MISH</ref> However, equally, if critics are correct that fractional reserve banking, excessive credit expansion and artificially low interest rates are at the root of all financial crises, then higher reserve ratios and capital requirements for domestic banks (or the existence of heavily controlled nationalized banks) should reduce the severity of economic crises in those economies with higher reserve requirements for their own banks.<ref>[http://www.bloomberg.com/news/2011-02-18/china-increases-banks-reserve-ratio-for-second-time-to-curb-property-boom.html China increases bank reserves to curb inflation], Bloomberg</ref><ref>[http://video.ft.com/ Lex's John Authers and Richard Stovin-Bradford discuss how to regulate banks better and how to handle those that are just too big to fail]</ref>

==Potential solutions==
Many consider it too late to reform the financial system.<ref>[http://www.zerohedge.com/news/2013-05-25/bill-black-our-system-so-flawed-fraud-mathematically-guaranteed Fraud is Guaranteed], Bill Black</ref><ref>[http://lewrockwell.com/stockman/stockman19.1.html A Review of The Great Deformation]</ref><ref>[http://matterhornassetmanagement.com/2013/03/18/get-your-assets-out-of-the-banks-now/ Get Your Assets Out of the Banks - NOW], Egon von Greyerz</ref><ref>[http://news.goldseek.com/LewRockwell/1306767600.php Is Greece the Future of America?], Mike Rozeff</ref><ref>[http://www.marketoracle.co.uk/Article27739.html Financial Slaughterhouse], Ashvin_Pandurangi</ref><ref>[http://www.marketoracle.co.uk/Article27764.html The Big QE2 Shakedown], Mike Whitney</ref><ref>[http://www.youtube.com/watch?v=-GmBoJ7qHYg&feature=player_embedded Simon Johnson INET]</ref><ref>[http://www.guardian.co.uk/business/2010/sep/14/banking-reforms-too-little-too-late Too Little Too Late], UK Guardian, 14 Sept 2010</ref><ref>[http://www.marketoracle.co.uk/Article27583.html Fed Reckoning Day Realities for Investor Pains and Gains], Deepcaster LLC</ref><ref>[http://maxkeiser.com/2013/02/02/kr401-keiser-report-fake-it-til-you-make-it-economy/ Fake It Till You Make It]</ref><ref>[http://www.marketoracle.co.uk/Article39037.html Fiat Currency Witches Brew], Ty Andros</ref> There is now so much debt in the system that the reduction in money supply growth necessary to curb [[malinvestment]] and financial bubbles would only result in financial crises and mass bankruptcies and, ultimately, business assets being transferred to the banking system. This is obvious when one observes that with no debt there is no money. With a slowing economy and reduction in money supply all assets subject to debt would inevitably be flushed through the banking system as a mathematical necessity.<ref>[http://www.moneyasdebt.net/ Money as Debt]</ref> Therefore virtually all assets will ultimately end up under the control or ownership the banking system if the present system is allowed to continue, as slowing money supply growth is inevitable with slowing population and economic growth. This is not true in a true free market monetary system<ref>[http://lewrockwell.com/woods/woods225.html Greenbackers Are Nuts]</ref> but is true of our current government manipulated debt-based system.<ref>[http://www.moneyasdebt.net/ Money as Debt]</ref>

When debt levels are unsustainable there are only a limited number of possible scenarios, and as each country reaches its debt limits each country will need to choose between these alternatives, as Iceland, Ireland, Cyprus, Greece and many other countries have already experienced. The debt is monetized, the debt is forgiven by the creditor, the debt is repudiated by the debtor and defaulted upon, the debt is postponed by temporary suspension of repayments, or the debtor finds unexpected or new ways to pay back the debt, which may include theft or confiscation from others.<ref>[http://www.zerohedge.com/news/2014-01-24/guest-post-how-paper-money-experiment-will-end How The Paper Money Experiment Will End]</ref>

The "Icelandic Solution" involved repudiation.<ref>[http://www.zerohedge.com/node/475643 The Secret Sauce of Iceland's Success Story: Debt Liquidation?]</ref> Private banks were allowed to fail and social security measures for the poor and indebted were increased. However this option is virtually impossible in other larger, less homogeneous countries given the power of the financial services sector over government in most other countries.<ref>[http://www.zerohedge.com/news/2013-01-26/only-3-minutes-worth-listening-davos Interview with Iceland's President Olafur Ragnar Grimson]</ref> It should be noted that all IMF member countries have a central bank at the heart of their financial system.<ref>[http://www.zerohedge.com/news/2013-09-16/25-fast-facts-about-federal-reserve Fast Facts About the Federal Reserve]</ref> The UK went so far as to trigger anti-terrorism legislation against Icelandic banks in a bid to pressure Iceland to pay out claims against its private banks.<ref>[http://reason.com/archives/2012/09/07/iceland-provides-a-blueprint-for-survivi Iceland Shows Other Europeans How to Survive Bankruptcy], ''Reason''</ref>

The simplest and cleanest solution for any debt-fuelled crisis is simply to [[default]] and not attempt to pay back the loans - particularly if the debt has been created unethically or fraudulently.<ref>[http://mises.org/daily/6369/The-Ethics-of-Repudiation The Ethics of Repudiation]</ref><ref>[http://mises.org/daily/5476/ There Is Life After Default], Peter Klein</ref><ref>[http://www.oftwominds.com/blogsept11/Zeus-debt-forgiveness-9-11.html Endgame], Zeus Yiamouyiannis, Ph.D.</ref><ref>[http://globaleconomicanalysis.blogspot.com/2011/02/massive-rout-in-irish-elections.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+MishsGlobalEconomicTrendAnalysis+%28Mish%27s+Global+Economic+Trend+Analysis%29 Default Best Option for Ireland], MISH</ref><ref>[http://mises.org/daily/5449/Defaulting-on-the-Feds-Bonds Defaulting on the Fed's Bonds], Robert Murphy</ref> If, as Paul Krugman and other Keynesians have argued<ref>[http://lewrockwell.com/anderson/anderson330.html Do We Really 'Owe It to Ourselves]</ref> "we owe it to ourselves", then there should be no problem repudiating that debt as it would merely involve an accounting adjustment.<ref>[http://bastiat.mises.org/2013/02/we-only-repudiate-it-to-ourselves/ We Only Repudiate It to Ourselves]</ref> This was the solution chosen by Iceland, even in circumstances which involved powerful international creditors. Despite enormous pressure from the UK government to try to force the Icelandic government to bail out its banks, it chose not to do so and allowed the private banks to default.<ref>[http://www.dailymail.co.uk/news/article-1080233/Icelanders-hit-Brown-freezing-banks-assets-We-terrorists-campaign.html Icelanders hit back at Brown]</ref> The Greek government also partially defaulted on its debts in 2012.<ref>[http://www.bbc.co.uk/news/business-17341381 Greek Default]</ref> David Graeber, author of ''Debt: The First 5000 Years'' has stated a global debt Jubilee is inevitable.<ref>[http://www.youtube.com/watch?v=SxZtfi2pYNo&list=SPPszygYHA9K2ZtV_1KphSugBB7iZqbFyz&index=6 Max Keiser Interview with David Graeber]</ref> However, particularly where government debt default is involved, bankers generally do everything to avoid this "inevitable" outcome because it (a) reduces the value of their asset (debt-based government bonds) (b) reduces or even destroys their income stream (interest on bonds) and therefore may affect their retained earnings in future (and their credit rating and compliance with Basel III rules on Tier 1 capital) (c) can result in a systemic crisis as many banks will be using that government debt to satisfy their liquidity requirements and reduce counterparty risk - even more so under Basel III (which requires a minimum proportion of "liquid" assets to be held by the banks - and those "assets" mainly consist of government bonds) and (d) signals to other countries that it is possible to escape debt without consequence and so potentially reduces the value of government debt in surrounding countries.<ref>[http://globaleconomicanalysis.blogspot.com/2011/05/trichet-goes-ballistic-walks-out-of.html Trichet Goes Ballistic], MISH</ref> Self-interested bankers are therefore often desperate to avoid government debt default, and generally much prefer an economy to be strangled by debt rather than be freed of it.<ref>[http://globaleconomicanalysis.blogspot.com/2011/05/trichet-goes-ballistic-walks-out-of.html Trichet Goes Ballistic], MISH</ref>

Confiscation or theft is often the desperate debtor's only option, if the creditors are so powerful the debtor cannot default. The sudden confiscation of part of "insured" bank depositors' savings in Cyprus is an extreme example of the last option and is the international bankers' and creditor governments' preferred "solution" as it means their debts get repaid, however unjustly.<ref>[http://www.reuters.com/article/2013/03/17/us-eurozone-cyprus-risk-idUSBRE92G0BG20130317 Cyprus bank levy]</ref><ref>[http://www.marketoracle.co.uk/Article39536.html Cyprus Haircut]</ref><ref>[http://www.zerohedge.com/news/2013-03-22/ecb-set-fair-cypriot-standard-living-capital-controls Capital Controls in Cyprus]</ref>

As an example of the consequences of the two alternatives, Iceland did not try to save its private bankers but instead permitted them to default on private bond payments.<ref>[http://www.zerohedge.com/news/2013-01-26/only-3-minutes-worth-listening-davos Interview with Iceland's President Olafur Ragnar Grimson]</ref> Ireland on the other hand guaranteed private bank debt and in doing so subjected the taxpayers of that country to decades of payments for debts that were not incurred on their behalf or for their benefit. Many commentators have observed that in 2010 [[Iceland]] recovered much faster than other countries such as [[Ireland]].<ref>[http://www.smh.com.au/business/iceland-bounces-back-as-pain-leads-to-gain-20101208-18pvm.html Iceland Bounces Back]</ref><ref>[http://www.vanityfair.com/business/features/2011/03/michael-lewis-ireland-201103?printable=true When Irish Eyes Are Crying], Michael Lewis</ref> In his extensive analysis of the aftermath of the banking panic in Ireland, Michael Lewis wrote of his puzzlement that the timid Irish government thought it was beyond the bounds of acceptable political discourse to consider default on privately issued Irish bank bonds, when Iceland successfully defaulted and only after this did they nationalize their banking system.<ref>[http://www.vanityfair.com/business/features/2011/03/michael-lewis-ireland-201103?printable=true When Irish Eyes Are Crying], Michael Lewis</ref> Commentators still dispute the relative costs and benefits of the policies implemented in Iceland and Ireland. The inflation rate has remained higher but unemployment rate remained substantially lower in Iceland compared to Ireland.<ref>[http://mises.org/daily/6575/Inflation-Has-Not-Cured-Icelands-Economic-Woes Inflation and Iceland]</ref><ref>[http://www.marketoracle.co.uk/Article42958.html Bank Guarantee Bankrupted Ireland]</ref>

In the absence of outright default, some governments simply delay addressing the issues of debt and default, with the central bank buying government bonds and manipulating the stockmarket and other asset and commodity markets to keep solvency in the banking system and government alive.<ref>[http://lewrockwell.com/barnett/barnett39.1.html Are the Federal Reserve and Its Primary Dealer Banks Manipulating the Stockmarket?]</ref><ref>[http://www.gold-eagle.com/editorials_12/lundeen061712.html Market Manipulation]</ref> Time may allow re-inflation of the markets through the gradual injection of new [[debt money]] into the system through new borrowings. It is a rare "[[black swan]]" event for a cluster of private businesses or banks to default at the same time and governments often hope that this will not happen again once it has happened already. However, if the crisis is one of national solvency, waiting passively for recovery may only delay - and exacerbate - the final catastrophe as the debt-based monetary system pushes all businesses slowly towards the next crisis by confusing and misleading market participants with false price signals, particularly as they relate to interest rates. Once the next crisis hits because of even more confused price signals due to government interference in the market for money, time is something panicked financiers and investors are least likely to want to give up when the threat is never getting their [[money]] out of the imploding investment [[bubble]]. In extreme cases [[bank]]s could set up "independent" corporate investment vehicles to buy the assets associated with the [[bad debt]],<ref>[http://www.dealbreaker.com/2007/10/citigroup_looks_to_lend_money.php Citigroup looks to lend money]</ref> thereby allowing [[borrower]]s to liquidate their investments and allow time for the markets to re-inflate. Alternatively, these "sour" loans, that have gone bad through too much debt overwhelming the markets, could be dumped or "hidden" on the central bank's balance sheet, and swapped for more secure government debt (financed through compulsorily acquired taxes, which are immune from the risk of private bankruptcy). However the holding costs involved in these measures would be extremely high and would not guarantee that the losses could be averted if no new gullible investors could be found to offload these distressed assets.<ref>[http://www.youtube.com/watch?v=n8w6Nx2rfiE A Wikileaks for the Fed?]</ref> More fundamentally, these short-term "parachutes" used after bubbles burst do not save ordinary borrowers from [[foreclosure]] and [[bankruptcy]], nor do they address the pernicious long-term dysfunctional aspects of [[fractional reserve banking]] described above. These problems are temporarily averted, only to be dealt with yet again by the next generation of indebted governments and peoples.<ref>[http://www.informationclearinghouse.info/article18431.htm The Era of Global Financial Instability, by Mike Whitney]</ref><ref>[http://www.youtube.com/watch?v=n8w6Nx2rfiE A Wikileaks for the Fed?]</ref> Simply deferring the crisis and repeatedly bailing out the banks may simply entrench misallocation of resources within the financial and governmental sectors, starving private businesses of the savings needed to invest and produce.<ref>[http://www.zerohedge.com/news/2013-01-26/only-3-minutes-worth-listening-davos Interview with Iceland's President Olafur Ragnar Grimson]</ref>

The preferred long-term free market solution (outright default and a return to free market money and the abolition of legal tender and central banks) is extremely unlikely.<ref>[http://seekingalpha.com/article/273466-4-reasons-the-u-s-will-never-return-to-a-gold-or-silver-standard 4 Reasons the US Will Never Return to a Gold or Silver Standard]</ref> In addition, given that bankers and central banks "stole" most of the people's gold, with mass confiscations dating back to the 1930s in the US<ref>[http://www.gold-eagle.com/editorials_08/nielson031411.html The Great Gold Bait-And-Switch] Jeff Nielson</ref> and earlier in Europe,<ref>[http://www.lewrockwell.com/north/north107.html Buyers of Gold], Gary North</ref> an immediate and uncompensated<ref>[http://theeconomiccollapseblog.com/archives/10-things-that-would-be-different-if-the-federal-reserve-had-never-been-created 10 Things That Would Be Different]. Note: "uncompensated" in this context means "without allowing widespread debt default with minimal punishment" or "without the issuance of debt-free money to the general populace prior to a return to the gold standard"</ref> return to the gold standard now would simply further enrich bankers and impoverish workers through crushing deflation, as the value of the assets the middle class had previously saved in (housing and mutual funds) collapsed and gold (the "elite banker's money") suddenly soared in value,<ref>[http://www.zerohedge.com/news/2013-02-26/central-banks-cannot-create-wealth-only-liquidity Central Banks Cannot Create Wealth]</ref> allowing bankers yet another generation of largesse from past theft. It should be noted that one of the principal financial assets of both the IMF and the US central bank is confiscated gold (the other being government bonds).<ref>[http://www.xat.org/xat/worldbank.html The History of Money]</ref> Less than 1% of all pension fund assets held by the general public are currently allocated to physical precious metals and many mutual funds have mandates effectively prohibiting them from holding physical precious metals.<ref>[http://sgtreport.com/2011/07/gold-silver-and-pension-funds-portfolio-diversification-myths/ Gold, Silver and Pension Funds]</ref> If the gold price were to soar, the very institutions most responsible for financial disorder would be those most likely to benefit from the chaos, having already positioned themselves to benefit from any price explosion in gold.

Given that both the Icelandic and radical free market solutions are effectively impossible to implement to any significant extent, some analysts of the current debt-based monetary system consider that, after decades of excess debt and fiat money, the current capital structure is so distorted and malinvested, the food supply so industrialized and vulnerable to shocks, and the environment generally so polluted from government-protected mining and mass industrialization that there is no hope for the vast majority of the middle class and indeed the mass of humanity in the coming decades as a combination of periodic confiscation and selective debt monetization destroys any stability in the world economy.<ref name="death"/>

Getting back to a market-based banking system would require, at minimum: (1) abolition of all deposit insurance; (2) eliminating the doctrine of "Too Big to Fail" by prohibiting the central bank from buying any assets from insolvent banks; and (3) allowing the market to set interest rates by removing this price fixing power from the central bank and allowing the real inter-bank market to set interest rates.<ref>[http://bastiat.mises.org/2012/06/misesians-in-mordor-the-video/ Misesians in Mordor]</ref> However, such changes to the global monetary system would likely trigger immediate bank runs on the weakest banking institutions and (most likely) a systemic crisis, resulting in a sudden deep depression in the short term and a period of minimal or no capital investment in the medium term as access to lending dried up from suddenly illiquid financial institutions. Although in the minds of many Austrians, the resulting system would be greatly preferable to the current dysfunctional and unsustainable system, the transition period would likely be so traumatic that no democratic government (or no government at all) would likely countenance such deregulation, nor would they likely be allowed to by the banks themselves.

Government and banking have become so intertwined there is virtually no difference between them, as banks bail out governments who in turn bail out banks in Ponzi scheme fashion.<ref>[http://www.guardian.co.uk/commentisfree/2012/mar/22/greece-european-banks-eurozone European banks saving Greece or themselves?]</ref>

Coercive, rule-bound government, by its very nature, can only perpetuate itself if it constantly maintains a monopoly of force and is widely respected as the final arbiter of disputes between any two parties within its jurisdiction.<ref>[http://www.dailypaul.com/140907/hans-hoppe-on-why-he-thinks-limited-government-is-impossible Hans Hermann Hoppe on why limited government is impossible]</ref> Governments do not obtain their revenue through donations or voluntary payments but rather either tax the populace or print fiat money to spend on projects the government deems worthwhile. There is therefore an inherently dangerous power in government spending. Good government exists to provide public goods, regulate externalities and protect and enforce property rights.<ref>[http://blog.mises.org/6546/james-wilson-on-the-purpose-of-government-and-the-constitution/ James Wilson on the purpose of government], James Galles</ref> However, if government force is used not for public purposes but to protect and enhance the power of a tiny political and financial elite, parasitic thieving forces can take over monopoly government and destruction of the economy can occur without the ability of the people to revolt or defend themselves against the depredations of government force.<ref>[http://www.lewrockwell.com/orig11/wile13.1.html One World Government], Hans Hermann Hoppe</ref><ref>[http://www.youtube.com/watch?v=DNcDu0z9UfQ Matt Tiabbi Interview on UBS Scandal]</ref> Destructive policies can therefore continue for longer than the survival of the economy itself, especially if people have been lulled into complacency by a long history of relatively benign government whilst parasitic forces slowly take over power from behind the scenes.<ref>[http://www.lewrockwell.com/orig11/wile13.1.html One World Government], Hans Hermann Hoppe</ref> Some consider that modern democracy has been subverted and that the two-party choices being presented today are a charade, with little real difference between duopoly political parties, which are just shams to cover the slow but inexorable takeover of the levers of power by the financial "elite", who do not respect nor care about the will of the people, who they consider too stupid or powerless to be treated seriously.<ref>[http://www.youtube.com/watch?v=DNcDu0z9UfQ Matt Tiabbi Interview on UBS Scandal]</ref><ref>[http://globaleconomicanalysis.blogspot.com/2011/06/vote-for-whoever-you-want-bailout.html Vote for Whoever You Want], MISH</ref><ref>[http://lewrockwell.com/wile/wile36.1.html Stop Clinging to False Hope], Anthony Wile</ref><ref>[http://www.marketoracle.co.uk/Article28949.html United States of Denial], James West</ref> Since the mid-1990s and even earlier it has been argued by many commentators that the gold default of August 15, 1971 would inevitably lead to economic disaster due to the distorting and parasitic effects unlimited fiat money and credit creation would have on the productive private economy.<ref>[http://dailyreckoning.com/armageddon-can-wait/ Armageddon Can Wait], Bill Bonner</ref><ref>[http://www.nytimes.com/2011/08/01/business/deal-may-avert-default-but-some-ask-is-that-good.html?pagewanted=1&_r=1&hpw Deal May Avert Default, but Some Ask 'Is That Good?']</ref><ref name="Landis_Reprieve" /> The relentless exponential growth in retirement and welfare benefits will now be enough to bankrupt many Western governments (including the United States).<ref name="Landis_Reprieve" /><ref>[http://www.amazon.com/Boomergeddon-Deficits-Government-Devastate-Retirement/dp/1892538539/ref=sr_1_1?ie=UTF8&qid=1305008253&sr=8-1 Boomergeddon], James A. Bacon Jr</ref> No one in power today appears willing to tackle either the corrupt banking industry or government largesse.<ref>[http://www.youtube.com/watch?v=DNcDu0z9UfQ Matt Tiabbi Interview on UBS Scandal]</ref><ref>[http://globaleconomicanalysis.blogspot.com/2011/06/vote-for-whoever-you-want-bailout.html Vote for Whoever You Want], MISH</ref><ref>[http://www.prudentbear.com/index.php/thebearslairview?art_id=10538 Sayonara, Washington], Martin Hutchinson</ref> Too many in power have a vested interest in the continuation of the system of spiraling inflation and debt to stop it, even if it could be stopped.<ref>[http://www.youtube.com/watch?v=DNcDu0z9UfQ Matt Tiabbi Interview on UBS Scandal]</ref><ref>[http://www.zerohedge.com/article/guest-post-global-economy-burns-while-its-leaders-fiddle Global Economy Burns, While Its Leaders Fiddle], Nomi Prins, ZeroHedge</ref> Whilst the general economy suffers, old infrastructure collapses, man-made environmental crises abound, retailers go bankrupt, millions are foreclosed upon and are left homeless (whilst at the same time hundreds of thousands of houses lie empty and decaying) and real average incomes are decimated, perversely, banking bonuses and lobbyists' incomes have skyrocketed and the powers of the Fed and other central banks have increased because of increased regulatory duties despite their previous failures.<ref>[http://www.guardian.co.uk/politics/2011/jan/10/banks-unlimited-bonuses-ministers Banks given go-ahead to pay unlimited bonuses], Guardian UK</ref><ref>[http://www.creditcrunch.co.uk/forum/topic/9253-banking-cheats-will-always-prosper/ Bank Cheats Will Always Prosper], CreditCrunch.co.uk</ref><ref>[http://dailyreckoning.com/the-expanding-industry-of-us-government/ The Expanding Industry of US Government], Bill Bonner</ref> Despite this obvious incompetence and despite repeated failures of policy at the highest levels, anyone advocating solutions beyond those approved within failed mainstream two-party thought is commonly labelled "insane", "crazy" or an "extremist".<ref>[http://www.salon.com/news/opinion/glenn_greenwald/2010/05/28/crazy Who are the real "crazies"?], Glenn Greenwald, Salon.com</ref><ref>[http://lewrockwell.com/orig11/mullen-t4.1.1.html Extremism is the New Race Card], Tom Mullens</ref><ref>[http://www.telegraph.co.uk/finance/financialcrisis/8669352/Global-slump-warnings-if-US-triggers-insane-default.html Global slump warning if US triggers 'insane' default], Ambrose Evans-Pritchard</ref> Noted gold investor, Jim Sinclair, has publicly stated that the chaos has one cause - bankers have bought governments around the world and today's bankers are little more than irredeemably shallow "sociopaths", unable to grow a conscience and unable to foresee or care about the broader societal consequences of their actions beyond their own incestuous social groupings.<ref>[http://jsmineset.com/2009/08/31/china-invokes-a-stop-loss-on-otc-derivatives/ OTC Derivatives], Jim Sinclair</ref><ref>[http://maxkeiser.com/2011/07/17/alex-jones-on-satanic-rituals-of-bohemian-grove/ Alex Jones on Bohemian Grove], RTTV</ref> Leading British specialists in the pathology of the psychopath, Professors Robert Hare and Paul Babiak suspect the banking industry does indeed attract psychopaths and probably has a much higher proportion of mentally unstable psychopaths as executives compared to other industry sectors, although their comprehensive test (determining the degree of psychopathology in the workplace) has yet to be applied to the banking sector or to senior government officials or politicians.<ref>[http://www.ft.com/intl/cms/s/0/41fe2882-9cbe-11e0-bf57-00144feabdc0.html#axzz1QH9AQOwG Alfred Hitchcock' 'The Bankers'], James Makintosh, FT.com</ref> Michael Price, co-director of the Centre for Culture and Evolutionary Psychology at Brunel University in London agrees that the characteristics that make for good traders and investment bankers are very similar to those that define psychopaths. Former UK drug tsar David Nutt has stated that the banking crisis was caused by too many bankers taking cocaine.<ref>[http://www.telegraph.co.uk/finance/financialcrisis/9993266/Financial-crisis-caused-by-too-many-bankers-taking-cocaine-says-former-drugs-tsar.html Financial crisis caused by too many bankers taking cocaine], ''Telegraph''</ref> Therefore, given their likely sociopathic mind-set and hedonistic cocaine drug culture, provided they themselves are acquiring a greater share of gross national income, many bankers simply do not care about the consequences and will continue to label others as "crazy" or "insane" or "terrorists" for so long as it gives them cover to engage in their own [[embezzlement|criminal]] conduct and for so long as it permits the in-bred corruption to continue at the highest levels.<ref>[http://www.mises.org/daily/6314/Why-Bankers-Avoid-the-Public-Eye Banking and the State]</ref><ref>[http://blogs.telegraph.co.uk/news/nilegardiner/100099341/joe-biden-compares-the-tea-party-to-terrorists-is-this-the-most-crass-and-nasty-white-house-in-modern-us-history/ Joe Biden compares the Tea Party to terrorists], Nile Gardiner, UK Telegraph</ref> If the charade collapses and the elite are threatened, they will simply kill anyone who threatens them, as they have proven to do repeatedly in the past.<ref>[http://www.lewrockwell.com/lewrockwell-show/2011/02/15/187-confessions-of-an-economic-hit-man/ Confessions of an Economic Hit-Man], John Perkins</ref>

It should be noted that average bankers still earn around US$370,000<ref>[http://www.guardian.co.uk/business/2011/jan/14/jp-morgan-bankers-share-10bn Anger as JP Morgan bankers get $10bn pay and bonus pot]</ref> (or around £236,000 in the UK)<ref>[http://www.guardian.co.uk/business/2011/feb/15/barclays-capital-average-pay-236000-pounds Barclays investment bankers see average pay rise to £236,000]</ref> and this has steadily increased even in the aftermath of the financial crisis. Those who head up the "Too Big To Fail" banks earn around US$18 million per year, with some executives doubling their own pay in 2010.<ref>[http://www.guardian.co.uk/business/2011/apr/02/lloyd-blankfein-executive-pay-bonuses Goldman Sachs CEO's pay nearly doubles despite slump in profits]</ref> Lawyers who service and support the international banking and business community are reported to be earning up to US$2 million a year even in small peripheral countries such as Australia.<ref>[http://www.afr.com/p/national/legal_affairs/talent_war_pushes_star_lawyers_pay_ZDlK7zEXWaISbNy1QCtIUO Anger as JP Morgan bankers get $10bn pay and bonus pot]</ref>

Given many of these people are not actually producing services people would voluntarily pay for in a genuine free market economy, many of these service providers associated with the issuance and distribution of monopoly currency would be made redundant or be rendered unemployable almost immediately upon a return to a true free market gold standard. It is to be expected that these people would be violently opposed to any change in the ''status quo'' given the dramatic change in lifestyle that this would necessitate. In particular, it is to be expected that these people would specifically oppose the abolition of legal tender laws and fight against any formal declaration by any government that fractional reserve banking is a form of [[embezzlement]] or counterfeiting, or that the current financial system is a [[Ponzi scheme]] (which are generally illegal in most Western countries if they are not government-supported).

Jim Sinclair suggests that many senior participants in the international banking and derivatives industry should be jailed<ref>[http://jsmineset.com/2010/10/31/jims-mailbox-573/ Debt Burden Being Transferred], Jim Sinclair</ref> to protect the public from repeatedly being "raped"<ref>[http://jsmineset.com/2010/11/21/in-the-news-today-713/ EU Ministers Said To Plan Meeting Over Ireland], Jim Sinclair</ref> by their scams and has the following conclusion on his website:<ref>[http://jsmineset.com/2010/11/09/in-the-news-today-701/ There is no practical solution], Jim Sinclair</ref>

{{quote|For years I have been telling you that there is NO PRACTICAL SOLUTION to the total of all the mistakes that have been made since Roosevelt, in a depression, started it all.}}

Jim Sinclair considers it too late to save the system<ref>[http://www.youtube.com/watch?v=IF24atvNkSo&feature=player_embedded Jim Sinclair Interviewed by James Turk] Quote: "Who needs enemies when we have the financial leadership we have?"</ref> and recommends people become self-sufficient and buy gold to await the inevitable collapse of the political and economic system and the associated breakdown in the division of labor.<ref>[http://jsmineset.com/2011/04/07/the-system-has-failed/ The System Has Failed], Jim Sinclair</ref>

Max Keiser has stated that the culture of actual ''physical'' sexual coercion and harrassment allegedly exhibited in the financial services industry is simply symptomatic and an outgrowth of a culture of ''financial'' rape and exploitation.<ref>[http://www.youtube.com/watch?v=skwj6e9xvH8&feature=player_embedded#at=102 Savers vs Speculators] Quote: Max Keiser: "Munich Re, a financial terrorist responsible for creating ghettos. Financially disadvantaged folks who are on the short end of the 'ghettoization' of the financial terrorist schemes...are forced to wear ''yellow armbands'' and be ''sex slaves'' for their German hosts." Stacy Herbert: "Yes. And be stamped on their arms afterward to prove that they were used." Max Keiser: "Yes. Let's not forget the little serial code-stamp on the wrist as part of the package." Stacy Herbert: "But Max, the story here is that this goes from the very bottom. These are just agents going door-to-door selling insurance products in the financial services industry. The top of the pyramid of the banking Establishment is Dominique Strauss-Kahn." Max Keiser: "This is a culture. Dominique Stauss-Kahn is part of the banking ''culture''. There's Dominique Strauss-Kahn, Lloyd Blankfein, Jamie Dimon, this guy Pandit over at Citigroup, the CEO just paid himself $42 million for stealing $420 million - they have a culture of predator behavior where once you - like a serial killer - once you steal money from people with mortgage fraud or with banking fees that are illegitimate or with collateralized debt obligations you get a taste for serial financial killing. You graduate to these higher crimes and you become a Dominique Strauss-Kahn or a Lloyd Blankfein or a Jamie Dimon where serial financial murder is part of your day-to-day life. That's the culture you live in."</ref> In order to be part of the system, you must be blind to its consequences. Therefore, no one with a conscience can become powerful enough within the system to fundamentally change trajectory from its current catastrophic path.<ref>[http://www.youtube.com/watch?v=WqyCjR9JEMA&feature=player_embedded Nothing Stops Banks], Matt Taibbi</ref>

Ironically, many victims of rape and abuse come to blame themselves and never fight back, preferring to adapt to a life of abuse or enslavement. This is called "learned helplessness" in psychological terms. Doug French finds a direct analogy between the dynamics of ''physical'' rape and ''financial'' abuse, with many indebted individuals ''blaming themselves'' for their predicament and refusing to default on their debts, even though it would be in their clear financial interest to do so.<ref>[http://mises.org/daily/5409/BatteredHomeowner-Syndrome Battered Homeowner Syndrome], Doug French. Quote: 'Lenore Walker is the pioneer in the field of battered-spouse syndrome, with her book The Battered Woman. She believes that experiencing the repeated cycles of violence can result in a spouse developing "learned helplessness," a psychological state identified by psychologist Martin Seligman. The abused believe they lack control over their situation and are convinced escape is impossible. Their motivation to escape diminishes as they become increasingly passive.

Walker explains that the constant cycles of violence and reconciliation result in the following beliefs:

The abused

believes that the violence was his or her fault,
has an inability to place the responsibility for violence elsewhere,
fears for his/her life and/or the lives of his/her children, and
has an irrational belief that the abuser is omnipresent and omniscient.

These beliefs are strikingly similar to what underwater homeowners feel.

The abused believes that the violence was his or her fault. "It was my own fault for buying a house at the top of the market in the first place and borrowing too much money to do it." "I made my bed, now I must sleep in it, no matter how much financial pain it causes me."

The abused has an inability to place the responsibility for violence elsewhere. "It's nobody's fault but my own," say people with 20/20 hindsight. "Nobody made me sign the mortgage. I'm so stupid. The bank doesn't have to negotiate with me."

The abused fears for his/her life and/or the lives of his/her children. "My credit will be ruined. I won't be able to rent an apartment. My low credit score may keep me from getting a job. I don't want to uproot the kids and have to admit that daddy and mommy made a financial mistake."

The abused has an irrational belief that the abuser is omnipresent and omniscient. The abuser in this case is the lender or owner of the mortgage. The borrower fears that these lenders can take everything they have, leave them with nothing, and make their lives miserable forever.

At the same time, default moralizers reinforce these feelings. They have no sympathy for those making a poor housing and mortgage choice. A person must suffer the consequences of their actions, it's claimed.'</ref>

John Perkins, author of ''Economic Hitman'', has openly stated that the U.S. government is merely a front runner for major corporate interests and has brutally assassinated leaders of countries where reform has been attempted.<ref>[http://www.youtube.com/watch?v=xmU9R-BaFIQ Max Keiser Interview with John Perkins]</ref> The zealotry and extremism against genuine and honest monetary reformers on the one hand and the payoffs and largesse given to unprincipled and corrupt supporters of the current monetary regime on the other ensure there is no path of reform left for those potential leaders with a conscience.<ref>[http://www.zerohedge.com/article/more-political-capture-goldman-hires-top-republican-fed-transparency-foe-spends-more-time-se More Political Capture], ZeroHedge</ref>

Dimitry Orlov, author of ''Reinventing Collapse'', has written extensively about the striking similarities between the collapse of the USSR and the multiple environmental, economic and social crises facing the USA. He also predicts economic, political and social collapse in much of the West and in particular predicts that peak oil will result in some countries being cut off completely from oil supplies resulting in sudden social upheaval and starvation and believes that it is too late for any kind of meaningful reform:<ref>[http://www.youtube.com/watch?v=KLdwzcA9ZdM&feature=player_embedded#at=997 Dimitry Orlov Interview with Max Keiser - ''Reinventing Collapse'']</ref>

{{quote|(US military adverturism overseas) is just a very striking example of being unable to stop, even though what you're doing isn't actually working...

By demolishing as much of the social infrastructure as exists in the country... you will end up with an even less literate population that will be unable to oppose the government, unable to stand up for themselves and demand that their rights and needs be met...

People who think they can somehow skirt the financial system are wrong. They will be dominated by the Bernankes of this world and others. There isn't really a way out except to make do without money. And that's kind of what I try to explain to people is: Reduce your needs for any kind of interaction with the official economy and you will do better.}}

Given these repeated financial crises arising from the fiat monetary system, many [[monetary reform]]ers predict that there will inevitably be widespread default or hyperinflation or depression - or most likely all three simultaneously in what Ludwig von Mises predicted would be a "final and total catastrophe" of our unsustainable, Ponzi-like, fiat monetary system.<ref>[http://mises.org/daily/5041/Whats-Behind-the-Currency-War What's Behind the Currency War], Anthony Mueller</ref> After this "catastrophe"<ref name="Landis_Reprieve">[http://www.goldensextant.com/SavingtheSystem.html Fiat's Reprieve: Saving the System, 1979-1987], Robert K. Landis, August 21, 2004.</ref> in which a significant proportion of the population may die through starvation or war<ref>[http://lewrockwell.com/bonner/bonner602.html We're all going to die]</ref><ref>[http://www.zerohedge.com/article/20-signs-horrific-global-food-crisis-coming?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+zerohedge%2Ffeed+%28zero+hedge+-+on+a+long+enough+timeline%2C+the+survival+rate+for+everyone+drops+to+zero%29 20 Signs], ZeroHedge</ref><ref>[http://www.lewrockwell.com/adams-m/adams-m15.1.html US Agriculture Collapse]</ref><ref>[http://www.marketoracle.co.uk/Article26605.html Population Reduction], Chris Kitze</ref><ref>[http://www.rickackerman.com/2011/03/getting-the-jump-on-a-possible-food-shortage/ Getting the Jump on Food Shortages], Marilyn Ackerman</ref><ref>[http://www.goldismoney2.com/archive/index.php/t-524.html?s=d418ff253326772a09e1a8d992da7753 Venetian Bankers and the Dark Ages]</ref><ref>[http://mises.org/daily/6142/The-Apocalyptic-Vision-of-The-Road The Road], Ben O'Neill</ref> a spontaneous market-induced return to the [[gold standard]] is anticipated to be the most likely result.<ref>[http://www.youtube.com/watch?v=VMngK0t5WkY Mike Maloney interview with Max Keiser], The Keiser Report</ref><ref name="Landis_Reprieve" /><ref>[http://globaleconomicanalysis.blogspot.com/2011/02/us-dollar-about-to-lose-reserve.html US Dollar About to Lose Reserve Currency Status: Fact or Fiction?], MISH</ref><ref>[http://www.marketoracle.co.uk/Article40253.html The Great Gold Redemption], Peter Schiff</ref> Other possible solutions following the catastrophe include a return to legally enforced full reserve banking combined with the issuance government-issued debt-free [[fiat currency]], or [[free banking]] and the issuance of private coinage and private money. If these solutions are not initiated soon, it can be expected that a complete financial "meltdown" will ensue at some stage, as environmental crises and destruction of arable land slow GDP growth in developing nations and fewer young people in developed economies can be found who are willing to go into debt in sufficient magnitude to pay off the debts that have already been accumulated.<ref name="Bonner_Swan" /><ref name="Landis_Reprieve" /> As extreme inequality increases, [[foreclosure]]s mount and financial crises repeatedly erupt, many believe a political crisis will eventually result in calls for revolution and fundamental [[monetary reform]].<ref>[http://www.youtube.com/watch?v=uV_gwvSibmM&feature=player_embedded#at=510 Max Keiser on Alex Jones]</ref><ref>[http://www.youtube.com/watch?v=VMngK0t5WkY Mike Maloney interview with Max Keiser], The Keiser Report</ref><ref name="Landis_Reprieve" /> However, as noted above, some commentators consider that it is already too late to avoid a combined financial, environmental and demographic catastrophe even if reform is now attempted.<ref>[http://globaleconomicanalysis.blogspot.com/2011/03/oil-prices-are-double-edged-sword-peak.html Peak Everything?], MISH</ref><ref>[http://www.population-security.org/28-APP2.html NSSM 200 Directive], Henry A. Kissinger, April 24, 1974</ref><ref>[http://www.youtube.com/watch?v=0KInB2rvgaY&feature=fvsr Eco Eco Disaster], Keiser Report</ref>

Even if worldwide economic catastrophe cannot be averted at this stage of the metastasizing financial crisis, choices will still need to be made by each government in response to the crisis. On-going, worsening, [[debt]]-created crises in the economy and society (and the unsustainable damage to the [[environment]] caused by debt-created [[overconsumption]]) are likely to turn monetary and economic policies either to the extreme left or to the extreme right, as there are a number of competing solutions to the debt-based monetary "problem".<ref>[http://www.youtube.com/watch?v=jqjyk2cx5WU&feature=player_embedded#at=696 Taste of Freedom E126], Max Keiser, Keiser Report</ref> It should be noted that some commentators consider that Western governments have in recent years chosen a combination of the "worst" of all possible options: bailing out banks and increasing government spending and indebtedness whilst periodically trying to enforce austerity against the middle class and the ordinary working class.<ref>[http://www.zerohedge.com/news/2013-01-26/daniel-hannan-destroys-3-unquestionable-myths-our-crisis Daniel Hannan Oxford Speech]</ref> Some have called Western government policy reactions to the financial crisis as a decisive move towards "Crony Capitalism" that is neither "free market" nor "socialist" but rather the last desperate acts of a corrupt banker-government cabal of "counterfeiters".<ref>[http://www.zerohedge.com/news/2013-02-06/guest-post-all-well All Is Well], Jim Quinn</ref><ref>[http://www.mises.org/daily/6314/Why-Bankers-Avoid-the-Public-Eye Banking and the State]</ref><ref>[http://www.marketoracle.co.uk/Article37021.html Why We Are Bailing Out the Banks], Jesse</ref><ref>[http://www.economist.com/news/books-and-arts/21565142-how-america-bailed-out-banks-rather-its-citizens-crisis-mismanagement How America bailed out the banks rather than its citizens] ''The Economist''</ref><ref>[http://www.lewrockwell.com/rothbard/frb.html Fractional Reserve Banking], Murray Rothbard</ref> If this is correct, the destruction of economic capital in those countries adopting the Crony Capitalist model in response to the financial crisis will likely result in the descent into quasi-Third World status.<ref>[http://seekingalpha.com/article/309501-how-the-u-s-is-quickly-becoming-a-third-world-country-part-1 How the US is quickly becoming a Third World Country], Seeking Alpha</ref><ref>[http://www.lewrockwell.com/spl2/us-becoming-third-world.html 10 Signs the US is becoming a Third World Country]</ref><ref>[http://www.youtube.com/watch?v=qDKvSMZNgjc Peter Schiff Rips Paul Krugman on Economy]</ref><ref>[http://www.zerohedge.com/news/2013-07-24/guest-post-bankers-own-world Bankers Own the World]</ref>

===Libertarians, Austrians and commodity money===

[[Libertarians]] and [[Austrian School]] supporters envision a voluntary society of free markets (where banks - however large - are allowed to fail if they cannot perform their obligations),<ref>[http://www.zerohedge.com/news/2013-01-26/daniel-hannan-destroys-3-unquestionable-myths-our-crisis Daniel Hannan Oxford speech]</ref> small government<ref>[http://www.prudentbear.com/index.php/thebearslairview?art_id=10473 Models of Capitalism], Michael Hutchinson</ref> and the abolition of monopolistic legal tender laws,<ref>[http://mises.org/daily/5562/The-Real-Solution-to-the-Debt-Problem The Real Solution to the Debt Problem], David D'Amato</ref><ref>[http://lewrockwell.com/paul/paul766.html Legalize Currency Competition], Ron Paul</ref> allowing money backed by a ''free market''<ref>[http://www.lewrockwell.com/blog/lewrw/archives/94712.html Subcommittee Explores Sound Money]</ref><ref>[http://mises.org/daily/5562/The-Real-Solution-to-the-Debt-Problem The Real Solution to the Debt Problem], David D'Amato</ref> [[gold standard]] or [[silver standard]] to come back in circulation (or some other free market money system such as Bitcoin).<ref>[http://www.salon.com/2013/03/22/a_libertarian_nightmare_bitcoin_meets_big_government/ Bitcoin]</ref><ref>[http://lewrockwell.com/north/north1009.html Counterfeit Gold Standards], Gary North</ref><ref>[http://lewrockwell.com/orig11/krolman5.1.1.html Accidentally Conceived in 1971], Arthur M.M. Krolman</ref><ref>[http://www.marketoracle.co.uk/Article27532.html Why Monetary Expansion Must Stop], Patrick Barron</ref><ref>[http://www.marketoracle.co.uk/Article26339.html Silver and Opium], Antal E. Fekete</ref><ref>[http://www.marketoracle.co.uk/Article25212.html The Faults of FRB], Thorsten Polleit</ref> It should be noted that even a partial return to the gold standard (allowing foreign central banks to redeem US government bonds in US gold) would result in the gold price having to rise to approximately $20,000 per ounce.<ref>[http://www.zerohedge.com/news/2013-02-26/central-banks-cannot-create-wealth-only-liquidity Central Banks Cannot Create Wealth]</ref><ref>[http://www.youtube.com/watch?v=2rJspP6q3g8 Mike Maloney Interview with Max Keiser]</ref>

It must be emphasized that a ''necessary'' pre-condition in establishing a true free-market order would be the complete abolition of all legal tender laws<ref>[http://www.nysun.com/opinion/ron-paul-upping-the-ante-in-his-campaign/87502/ Ron Paul Upping the Ante]</ref> and the abolition of monopolistic central banking, including repeal of the [[Federal Reserve Act]] of 1913.<ref>[http://mises.org/daily/5562/The-Real-Solution-to-the-Debt-Problem The Real Solution to the Debt Problem], David D'Amato</ref><ref>[http://www.drschoon.com/articles%5CSilverGoldAndTheLastAmericanHeroJFK.pdf Silver, Gold and the Last American Hero JFK], Darryl Robert Schoon. Extracted quote from Ron Paul: "The United States Constitution grants to Congress the authority to coin money and regulate the value of the currency. The Constitution does not give Congress the authority to delegate control over monetary policy to a central bank. Furthermore, the Constitution certainly does not empower the federal government to erode the American standard of living via an inflationary monetary policy." Note: Another argument – that the power to "coin" money precludes issuance of paper money, and that the government must redeem paper money with "precious metal" – was dismissed as frivolous in ''Milam v. United States'', citing the Legal Tender Cases.</ref><ref>[http://www.lewrockwell.com/blog/lewrw/archives/73833.html End the Fed], Freedom Watch</ref><ref>[http://mises.org/daily/4860 Money: Sound and Unsound], Mark Thornton commentary on Joseph Salerno's book</ref><ref>[http://www.prudentbear.com/index.php/thebearslairview?art_id=10471 Gold Standard Renaissance?]</ref><ref>[http://www.marketoracle.co.uk/Article24632.html The Gold Standard Never Dies], [[Lew Rockwell]]</ref><ref>[http://www.prudentbear.com/index.php/thebearslairview?art_id=10471 Gold Standard], Michael Hutchinson</ref><ref>[http://mises.org/store/Money-Bank-Credit-and-Economic-Cycles-P290C0.aspx Money, Bank Credit and Economic Cycles], Jesus Huerta de Soto, Mises Institute ISBN: 978-1-933550-39-8</ref><ref>[http://radio.goldseek.com/griffin04.10.10.php Goldseek interview] with [[G. Edward Griffin]]</ref><ref>See also these [[Murray Rothbard]] articles: [http://www.mises.org/money.asp What Has Government Done to Our Money?], [http://www.mises.org/story/1829 The Case for the 100% Gold Dollar]; [http://www.lewrockwell.com/rothbard/cartelization.pdf The Fed as Cartel], [http://www.lewrockwell.com/rothbard/rothbard191.html Private Coinage], [http://www.lewrockwell.com/rothbard/rothbard190.html Repudiate the National Debt]; [http://www.lewrockwell.com/rothbard/rothbard181.html Taking Money Back], [http://www.lewrockwell.com/rothbard/rothbard163.html Anatomy of the Bank Run], [http://www.lewrockwell.com/rothbard/rothbard128.html Money and the Individual]</ref> "Capitalism" or "the free market" cannot be blamed or held responsible for current dire economic conditions given this coercive government prohibition against competition in currency creation.<ref>[http://mises.org/daily/5562/The-Real-Solution-to-the-Debt-Problem The Real Solution to the Debt Problem], David D'Amato</ref> Some Keynesians dismiss this desire to return to the gold standard by pointing out that financial crises occurred prior to the creation of the Fed.<ref>[http://www.pbs.org/newshour/businessdesk/2013/06/paul-krugman-on-why-david-stoc.html Paul Krugman Interview]</ref><ref>[http://www.frbsf.org/economic-research/publications/economic-letter/2013/may/crises-before-after-creation-fed/ Crises Before and After the Fed]</ref> Austrians counter by stating that such crises, although possibly less frequent, have been more severe and long-lasting ''after'' the creation of the Fed.<ref>[http://mises.org/daily/3466 ABCT]</ref> In addition even those "panics" which occurred prior to the creation of the Fed had monetary causes relating to fractional bank regulation and speculation.<ref>[http://mises.org/document/695/ Panic of 1819}</ref> Some Libertarians would also support experimentation with [[full reserve banking]],<ref>[http://mises.org/daily/4860 Money: Sound and Unsound], Mark Thornton commentary on Joseph Salerno's book</ref><ref>[http://mises.org/store/Money-Bank-Credit-and-Economic-Cycles-P290C0.aspx Money, Bank Credit and Economic Cycles], Jesus Huerta de Soto, Mises Institute ISBN: 978-1-933550-39-8</ref><ref>[http://www.mises.org/Books/mysteryofbanking.pdf Murray Rothbard, ''The Mystery of Banking'']</ref> recognizing that when fractional-reserve banking is combined with the gold standard a strong cyclical bias (and the systematic transfer of real wealth to the banking system) is normally inevitable.<ref>[http://mises.org/daily/5174/Life-with-the-Fed-Sunshine-and-Lollipops Life With The Fed], Thomas Woods</ref><ref>[http://mises.org/daily/5185/The-Need-for-100-Reserves The Need for 100% Reserves], Frank D. Graham</ref> Those Libertarians who support full reserve banking would strongly support more flexible and forgiving bankruptcy laws in a fractional reserve banking environment, recognizing that no stigma should be attached to bankruptcy given the anti-Libertarian "unjust acquisition" of real wealth implicit in central banking, compulsory legal tender laws, fractional reserve banking and taxation.<ref>[http://mises.org/daily/4860 Money: Sound and Unsound], Mark Thornton commentary on Joseph Salerno's book</ref><ref name="Repudiating the National Debt">[http://mises.org/article.aspx?Id=1423 Repudiating the National Debt], Murray Rothbard</ref><ref>[http://www.mises.org/Books/mysteryofbanking.pdf Murray Rothbard, ''The Mystery of Banking'']</ref><ref>[http://gonzalolira.blogspot.com/2010/12/want-to-ruin-your-own-country-assume.html Want to Ruin Your Country?]</ref>

In the absence of sound money, over time large private corporations become mere extensions of powerful government and banking fiat.<ref>[http://www.zerohedge.com/news/2013-04-03/david-stockman-keynesian-endgame The Keynesian Endgame], David Stockman</ref><ref name="death"/><ref>[http://mises.org/rothbard/newlibertywhole.asp For A New Liberty], Murray Rothbard</ref><ref>[http://news.goldseek.com/EuroCapital/1313178959.php The Fix is In], Peter Schiff</ref> David Stockman has stated the following:.<ref>[http://www.zerohedge.com/news/2013-04-03/david-stockman-keynesian-endgame The Keynesian Endgame], David Stockman</ref>

{{quote|It not only shows that the so-called recovery is tenuous and highly skewed to a small slice of the population at the top of the economic ladder, but also that statist economic intervention has now become wildly dysfunctional. Largely based on opulence at the top, Wall Street brays that economic recovery is under way even as the Main Street economy flounders. But when this wobbly foundation periodically reveals itself, Wall Street petulantly insists that the state unleash unlimited resources in the form of tax cuts, spending stimulus, and money printing to keep the simulacrum of recovery alive.}}

Libertarians such as Murray Rothbard argue that in such a toxic monetary environment resource allocation is perverted by some or all of the following factors: corrupt alliances between so-called "private corporations" (which are often extensions of government or banking interests) and regulators; increasingly intensive business structures to suit the needs of a concentrated and cartelized banking system; and the constant overriding of small communities and local government planning with central government directives to satisfy the needs of big business.<ref>[http://news.goldseek.com/EuroCapital/1313178959.php The Fix is In], Peter Schiff</ref><ref name="death"/> In such a corrupted monetary system, libertarians argue that financial and man-made environmental crises cannot legitimately be blamed on "private" corporations but rather blame must fall squarely on the true source of the problem - centralized government control of credit and money, which in turn dilutes private property rights (especially in relation to traditional owners and farmers) and creates massive distortions in scarce resource allocation, with financial ''and'' environmental crises being the predictable consequence.<ref name="death"/><ref>[http://mises.org/rothbard/newlibertywhole.asp For A New Liberty], Murray Rothbard</ref><ref>[http://maxkeiser.com/2011/06/11/ote114-on-the-edge-with-peter-schiff/ Peter Schiff Interview with Max Keiser]</ref><ref>[http://www.marketoracle.co.uk/Article29029.html Getting Used to Life without Food], F. William Engdahl</ref>

Regarding the current accumulation of government bonds and private debt, many Libertarians believe that the creation of the [[Federal Reserve System|Federal Reserve]] under the [[Federal Reserve Act]] of 1913 was unconstitutional and consider that at least some of this accumulated debt should be canceled or forgiven ''prior'' to a return to the gold standard in recognition of its fundamental illegitimacy.<ref>[http://www.zerohedge.com/news/guest-post-federal-debt-criminal-scam-federal-reserve-criminal-syndicate Federal Debt As Criminal Scam], Charles Hugh Smith</ref><ref>[http://www.marketoracle.co.uk/Article29433.html The Never-Ending Economic Depression], Washington Blog</ref><ref>[http://www.zerohedge.com/article/antal-feketes-open-letter-ron-paul-impeach-bernanke Antal Fekete's Letter to Ron Paul]</ref><ref name="Repudiating the National Debt"/><ref>[http://www.youtube.com/watch?v=1zMv4Offm_8&feature=player_embedded#at=1341 Max Keiser Interview with Alex Jones]</ref><ref>[http://www.zerohedge.com/news/guest-post-federal-debt-criminal-scam-federal-reserve-criminal-syndicate Federal Debt As Criminal Scam], Charles Hugh Smith</ref><ref>[http://blog.mises.org/18590/roubini-thoroughly-confused-by-austrian-economics/ Roubini Confused], Justin Ptak</ref> Arguably this would be supported by the "just acquisition" jurisprudence of legal philosopher [[Robert Nozick]] and Libertarian advocate [[Murray Rothbard]].<ref name="Repudiating the National Debt"/> As Murry Rothbard states:<ref>[http://angloaustria.blogspot.com/2010/05/quote-of-day-on-repudiation.html The Ethics of Liberty], Murray Rothbard</ref>

{{quote|Many libertarians fall into confusion on specific relations with the State, even when they concede the general immorality or criminality of State actions or interventions. Thus, there is the question of default, or more widely, repudiation of government debt. Many libertarians assert that the government is morally bound to pay its debts, and that therefore default or repudiation must be avoided. The problem here is that these libertarians are analogizing from the perfectly proper thesis that private persons or institutions should keep their contracts and pay their debts. But government has no money of its own, and payment of its debt means that the taxpayers are further coerced into paying bondholders. Such coercion can never be licit from the libertarian point of view. For not only does increased taxation mean increased coercion and aggression against private property, but the seemingly innocent bondholder appears in a very different light when we consider that the purchase of a government bond is simply making an investment in the future loot from the robbery of taxation.}}

In late 2010, financial commentator Max Keiser started the [[Buy Silver Crash JP Morgan Campaign 2010]] in an attempt to expose the flaws underlying the [[fractional reserve banking]] system.<ref>[http://www.youtube.com/watch?v=1zMv4Offm_8&feature=player_embedded#at=1341 Max Keiser Interview with Alex Jones]</ref><ref>[http://www.youtube.com/watch?v=_IKbAmsGey0&feature=player_embedded#at=66 Bob Chapman Silver Predictions]</ref><ref>[http://www.guardian.co.uk/commentisfree/2010/dec/02/jp-morgan-silver-short-selling-crash Want JP Morgan to crash? Buy silver], Max Keiser</ref>

Spontaneous protests against the Federal Reserve and the current financial system commenced in September 2011 across the United States and current protests can be found on the [http://www.occupytogether.org/ OccupyTogether.org] website.

====Free Banking and Full Reserve Banking====

On the issue of the required level of bank reserves, Austro-libertarians are sharply divided on the optimal solution to eliminate the price distorting and destructive forces inherent in fractional reserve banking.<ref>[http://www.thedailybell.com/29047/Anthony-Wile-Antal-Fekete-Gold-Backwardation-and-the-Collapse-of-the-Tacoma-Bridge Antal E Fekete]</ref><ref>[http://mises.org/journals/qjae/pdf/qjae13_4_2.pdf Fractional Reserve Free Banking: Some Quibbles], Philip Bagus and David Howden</ref><ref name="Cochran_Free">John P. Cochran. [http://mises.org/daily/4898 ''Free Banking''], ''Mises Daily'', review of ''Free Banking: Theory, History, and a Laissez-Faire Model'' by Larry Sechrest</ref><ref>[https://mises.org/journals/qjae/pdf/qjae15_2_3.pdf Against Monetary Disequilibrium Theory], Laura Davidson</ref>

Some Austrian scholars advocate "free banking", where banks are legally permitted to engage in fractional-reserve banking activities ''provided'' they comply with the standard laws against fraud and are not supported in any way against the possibility of bank runs and are forced into bankruptcy should they not be able to pay their debts as and when they fall due.<ref name="Cochran_Free" /> Provided depositors are clearly made aware that their demand deposits are being lent out and are not universally available for immediate withdrawal and provided there is no way in which such banks are propped up in the face of bank runs, free banking advocates do not support outlawing fractional reserve banking as embezzlement ''per se''.

Advocates of this system of banking include Lawrence White, Steven Horwitz, George Selgin, and Kevin Dowd, amongst others.<ref name="Cochran_Free" /> F.A. Hayek also advocated the de-nationalization of money production and implicitly supported a free banking financial system in some of his works on monetary reform.<ref>[http://www.mises.org/store/Free-Market-Monetary-System-A-P553.aspx?AFID=14 ''Free Market Money System''] by [[F.A. Hayek]]</ref>

Rothbardian-oriented Austrian scholars advocate "[[full reserve banking]]", considering fractional-reserve banking and the associated issuance of irredeemable paper money to be inherently fraudulent, unethical, unjust, disruptive and dysfunctional, akin to embezzlement and counterfeiting.<ref>[http://www.zerohedge.com/article/citizen-sues-atlanta-fed-based-allegation-its-issuing-federal-reserve-notes-it-has-no-intent Citizen Sues Atlanta Fed], ZeroHedge</ref><ref>[http://mises.org/journals/qjae/pdf/qjae13_4_2.pdf Fractional Reserve Free Banking: Some Quibbles], Philip Bagus and David Howden</ref><ref>See for example these [[Murray Rothbard]] articles: [http://www.mises.org/money.asp What Has Government Done to Our Money?], [http://www.mises.org/story/1829 The Case for the 100% Gold Dollar]; [http://www.lewrockwell.com/rothbard/cartelization.pdf The Fed as Cartel], [http://www.lewrockwell.com/rothbard/rothbard191.html Private Coinage], [http://www.lewrockwell.com/rothbard/rothbard190.html Repudiate the National Debt]; [http://www.lewrockwell.com/rothbard/rothbard181.html Taking Money Back], [http://www.lewrockwell.com/rothbard/rothbard163.html Anatomy of the Bank Run], [http://www.lewrockwell.com/rothbard/rothbard128.html Money and the Individual]</ref> [[Full reserve banking]] would require banks to retain in reserve all deposits that are legally available for immediate withdrawal, and permit lending only from longer-term deposits.

Advocates of this system of banking include [[Murray Rothbard]],<ref name="The Mystery of Banking">[http://www.mises.org/Books/mysteryofbanking.pdf ''The Mystery of Banking''], Murray Rothbard</ref><ref name="The Case for a 100% Gold Dollar">[http://mises.org/story/1829 The Case for a 100% Gold Dollar], Murray Rothbard</ref> [[Jesus Huerta de Soto]],<ref>[http://www.mises.org/books/desoto.pdf ''Money, Bank Credit, and Economic Cycles''], Jesus Huerta de Soto, First English edition (2006), pp. 98-114</ref> [[Jörg Guido Hülsmann]],<ref>[http://mises.org/media/4014 The Economics of Legal Tender Laws], and [[Jorg Guido Hulsmann]] (includes detailed commentary on [[central banking]], [[inflation]] and [[fractional reserve banking|FRB]])</ref><ref name=FBFB>[http://mises.org/journals/rae/pdf/RAE9_1_1.pdf Free Banking and the Free Bankers], Jörg Guido Hülsmann, Quarterly Journal of Austrian Economics (Vol. 9, No. 1)</ref><ref>[http://www.lewrockwell.com/lewrockwell-show/2011/01/04/181-hyperinflation-ahead/ Interview with Jörg Guido Hülsmann], The Lew Rockwell Show</ref> amongst others.<ref>[http://mises.org/journals/qjae/pdf/qjae13_4_2.pdf Fractional Reserve Free Banking: Some Quibbles], Philip Bagus and David Howden</ref><ref>[http://mises.org/daily/4880 The Faults of Fractional-Reserve Banking], Thorsten Polleit</ref>

Commentators David Stockman and Michael Shedlock also support the creation of full reserve postal savings banks that do not lend out money from checking accounts.<ref>[http://globaleconomicanalysis.blogspot.com.au/2013/04/stockman-fires-back-at-krugman-labeling.html David Stockman Fires Back At Krugman]</ref> According to Michael Shedlock:<ref>[http://globaleconomicanalysis.blogspot.com.au/2013/04/stockman-fires-back-at-krugman-labeling.html David Stockman Fires Back At Krugman]</ref>

<blockquote>And the solution is so easy too. Open a bank that charges nominal fees for checking and makes no loans. Such a bank would not need loan officers or other high-priced personnel. It would offer safekeeping of money and simple checking accounts for a fee.

Those who want interest on their money should have to take a risk, the risk of a possible loss.

Finally, and as I have pointed out before, lending of checking accounts is outright fraud. Checking accounts are supposed to be money available on demand, but since Greenspan authorized Sweeps in 1994, almost none of it is.</blockquote>

Most recently, in late 2010, two British MP's, Douglas Carswell and Steven Baker, sought to introduce legislation into the British Parliament that would allow depositors to decide if their money should be lent out and for what period.<ref>[http://www.telegraph.co.uk/finance/financetopics/financialcrisis/8004540/The-radical-reform-that-would-end-boom-and-bust-in-banking.html ''The Radical Reform in Banking''], Toby Baxendale, ''Daily Telegraph'', 15 Sept 2010</ref> If this legislative reform were to pass, British depositors would have the option to elect to save their money in full reserve bank accounts.

In early 2013, the idea of full reserve banking began to reappear in mainstream circles, after other "remedies" appeared to fail or only defer the next crisis, but not solve the banking "problem".<ref>[http://www.telegraph.co.uk/finance/comment/jeremy-warner/10107375/The-banking-revolution-that-would-wipe-out-Britains-debts.html Banking Revolution]</ref> Even some "establishment" economists such as Jeffrey Sachs has openly criticized unregulated fractional reserve banking, and called for a clear legislative division between heavily regulated and controlled liquidity-supplying high-reserve fractional reserve banking and open unprotected speculation, which would be subject to risk of bankruptcy.<ref>[http://www.youtube.com/watch?feature=player_embedded&v=7VOWnnEphjI Jeffrey Sachs audio]</ref>

Antal E. Fekete of the New Austrian School advocates return of real bills (which are self-liquidating debt) and criticizes the Rothbardian position opposing fractional reserve banking as impractical and ahistorical.<ref>[http://www.thedailybell.com/29047/Anthony-Wile-Antal-Fekete-Gold-Backwardation-and-the-Collapse-of-the-Tacoma-Bridge Antal E Fekete]</ref> He has stated:

<blockquote>The altercation between the American Austrians and the New Austrian School of Economics is a tragic waste of talent. We should settle our differences not by mud-slinging and by calling names, but through high level scientific debates... I sincerely hope that they accept and we can join forces in preparing the ground for the triumph of the gold standard after a brief reactionary period in history dominated by the regime of irredeemable currency.</blockquote>

====Market Money: Gold and Silver and Crypto-Currency====
In the absence of reform, many Austrians and libertarians are actively buying gold and silver and transferring savings to Bitcoin which cannot be created at the whim of governments.<ref>[http://goldinvestingnews.com/26510/peter-schiff-gold-money-fiat-currency-price-outlook-central-banks-investing.html Peter Schiff on Gold and Money]</ref><ref>[http://www.ronpaul.com/on-the-issues/fiat-money-inflation-federal-reserve-2/ Honest Money]</ref><ref>[http://www.lewrockwell.com/paul/paul125.html Fiat Paper Money], Ron Paul</ref><ref>[http://www.mogamboguru.com/writings.html Mogambo Guru]</ref><ref>[http://www.youtube.com/watch?v=O2rsQhsTTbE Max Keiser on Bitcoin]</ref> Many Austrians believe gold and silver and other essential commodities are ideal investments during this period of fiat money expansion and experimentation, as no government in the history of the world has ever escaped economic catastrophe and debasement of the currency after adopting a pure fiat money<ref>[http://historysquared.com/2012/06/26/fiat-currencies-trend-towards-their-intrinsic-value-often-rather-quickly/ Fiat Currencies Trend Towards Their Intrinsic Value]</ref><ref>[http://www.zerohedge.com/news/2013-04-05/guest-post-more-monetary-quackery More Monetary Quackery]</ref><ref>[http://goldinvestingnews.com/26510/peter-schiff-gold-money-fiat-currency-price-outlook-central-banks-investing.html Peter Schiff on Gold and Money]</ref><ref>[http://www.ronpaul.com/on-the-issues/fiat-money-inflation-federal-reserve-2/ Honest Money]</ref><ref>[http://www.lewrockwell.com/paul/paul125.html Fiat Paper Money], Ron Paul</ref><ref>[http://www.professorfekete.com/articles/AEFFiatMoneyInDeathThroes.pdf Fiat Money in Death Throes], Antal E Fekete</ref><ref>[http://www.professorfekete.com/articles%5CAEFAmericanBasesGermanyGoldBasis.pdf American Bases], Antal E Fekete]</ref> and keeping money in bank deposits is becoming increasingly risky as governments renege on promises to keep depositors' money safe.<ref>[http://truthingold.blogspot.com.au/2013/04/the-frightening-truth-about-cyprus-bail.html?showComment=1365106177301 The Truth About the Cyprus "Bail In"]</ref><ref>[http://www.zerohedge.com/news/2013-04-02/ron-paul-great-cyprus-bank-robbery The Great Cyprus Bank Robbery], Ron Paul</ref>

===Neo-Chartalism and Modern Monetary Theory===

Neo-Chartalists and associated advocates of Modern Monetary Theory (MMT) also accept that the current bank-dominated monetary system is dysfunctional, but advocate reform ''within'' the strictures of a fiat monetary system rather than looking to return to a commodity-based monetary system.<ref>[http://www.cnbc.com/id/45795986/Modern_Monetary_Theory_and_Austrian_Economics Modern Monetary Theory and Austrian Economics], John Carney</ref>

Most advocates of MMT support deficit spending to support the economy, believing governments can never go bankrupt in a fiat monetary system.

Austrians and sound money advocates criticize supporters of MMT not in their description of the current monetary system (which many Austrians consider reasonably accurate) but for their "shallow" understanding of the dangers of unfettered government spending through fiat money creation and their "naive" support of deficit spending and inflationary policies as an "easy" way out of economic crises.<ref>[http://www.soundmoneyproject.org/?p=4881 The Upside-Down World of MMT], Robert Murphy</ref><ref>[http://www.zerohedge.com/news/sean-corrigan-crucifies-mmt Sean Corrigan Crucifies MMT], ZeroHedge.com</ref>

===Debt-free fiat money===

The concept of debt-free money is most notably represented by [[Michael Rowbotham]], [[Stephen Zarlenga]] of the American Monetary Institute, Bill Still producer of the well-known ''[http://www.youtube.com/watch?v=JXt1cayx0hs Money Masters]'' videos and [[Ellen Hodgson Brown]].<ref>[http://www.youtube.com/watch?v=6MKjlPmVVK4 Bill Still on gold reserves]</ref> They advocate various forms of "pure" fiat money issuance by government, without the need for the government to issue a bond to print or issue the fiat money. More recently, mainstream economists have begun to seriously consider the issuance of debt-free money as a policy solution to the current ongoing crisis.<ref>[http://blogs.reuters.com/anatole-kaletsky/2013/02/07/a-breakthrough-speech-on-monetary-policy/ A Breakthrough Speech on Monetary Policy], Anatole Kaletsky</ref><ref>[http://krugman.blogs.nytimes.com/2013/01/07/be-ready-to-mint-that-coin/ Be Ready To Mint That Coin], Paul Krugman</ref><ref>[http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/9970294/Helicopter-QE-will-never-be-reversed.html Helicopter QE will never be reversed], Ambrose Evans-Pritchard</ref>

Currently virtually all money issued in modern economies is initially sourced from debt; in other words, it is "debt money" because it is created via some entity (government or business or individuals) borrowing fiat money into existence and the money being created by a bank before it is spent by the government or by a business or by an individual. "Debt money" is therefore money created in parallel with debt or [[Credit (finance)|credit]] via the process of [[fractional reserve banking]] or the issuance of a bond from the central bank.

"Debt-free money" is a "true" or "pure" fiat currency issued by the [[Treasury]] of a [[central government]], where there is no requirement for its eventual return as a condition of its creation (except by way of payment of taxes).<ref name="death"/> It is argued by Rowbotham and others that this would allow for the substantial lowering of tax rates, would allow public works projects to be funded cheaply, and would stimulate economic development, if the fiat money is spent sensibly on inflation-lowering long-term capital projects.<ref name="death"/>

[[Michael Rowbotham]] seeks the cancellation of "unjust" debts (such as [[third world debt]]), and, crucially and most importantly, a [[social security]] [[safety net]] involving a guaranteed minimum [[social credit|debt-free income]] (sourced from government-issued debt-free money independent of any central bank) for all citizens in the debt-based economy. Under this proposal, every adult citizen would be given a livable debt-free income transferred electronically into their [[bank account]], simply by virtue of their [[citizen]]ship. They could then use this debt-free money to pay off their [[mortgage]]s or to live, debt-free, without being compelled to work as a [[wage slavery|wage slave]] in the market economy if they chose not to. The government would finance these payments simply by ordering the private banks to accept their electronic instructions as legal tender. It would therefore not result in the expansion of [[government debt]].<ref name="death"/>

Ex-U.S. Treasury Department analyst Richard C. Cook also supports the issuance of debt-free money and zero-interest credit by the central government and has provided a detailed blueprint of monetary reform recommendations to transition to a debt-free money supply.<ref name="marketoracle.co.uk"/>

Some commentators have speculated that the issuance of massive amounts of debt-free pure fiat money is already happening, and we are currently living in a massive money printing experiment, as so-called "quantitative easing" will never be reversed.<ref>[http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/9970294/Helicopter-QE-will-never-be-reversed.html Helicopter QE will never be reversed], Ambrose Evans-Pritchard</ref> Ambrose Evans-Pritchard has warned:<ref>[http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/9970294/Helicopter-QE-will-never-be-reversed.html Helicopter QE will never be reversed], Ambrose Evans-Pritchard</ref>

{{quote|If Lord Turner's helicopters are ever needed, we can be sure that the Anglo-Saxons and the Japanese will steal a march, while Europe will be the last to move. The European Central Bank will resist monetary financing of deficits until the bitter end, knowing that such action risks destroying German political consent for the euro project.

By holding the line on orthodoxy, the ECB will guarantee that Euroland continues to suffer the deepest depression. Once the dirty game begins, you stand aside at your peril.

A great many readers in Britain and the US will be horrified that this helicopter debate is taking place at all, as if the QE virus is mutating into ever more deadly strains.

Bondholders across the world may suspect that Britain, the US and other deadbeat states are engineering a stealth default on sovereign debts, and they may be right in a sense. But they are warned. This is the next shoe to drop in the temples of central banking.}}

====Properties====
According to its proponents, government-issued debt-free fiat currency (such as debt-free notes and coins) can circulate perpetually in the economy as "stable" money and although not as secure as [[hard currency]], government-issued debt-free notes and coins (such as United States Notes and silver certificates) do not have the same effects of debt-based money (which require pertpetual interest payments to be tied to the creatin of new money).<ref>[http://www.entrewave.com/freebooks/docs/a_pdfs/gnhm.pdf Honest Money]</ref> It should be noted however that fiat currency can be a source of [[hyperinflation]] if its production is not controlled, as the government has the potential to issue unlimited amounts of fiat currency - ''provided'' it is accepted as "money" by the private banking system.<ref>[http://mises.org/books/shorthistorypapermoney.pdf A Short History of Paper Money in the United States], William M. Gouge, Mises Institute</ref> Notably, the Federal Reserve reportedly threatened not to recognize the trillion dollar platinum coin should the Obama Administration try to mint one.<ref>[http://www.buzzfeed.com/zekejmiller/the-trillion-dollar-coin-was-killed-by-the-fed Trillion Dollar Coin Killed By Fed]</ref><ref>[http://webofdebt.wordpress.com/2013/01/18/the-trillion-dollar-coin-joke-or-game-changer/#more-5323 The Trillion Dollar Coin], Ellen Hodgson Brown</ref> Debt-free notes and coins in circulation (being defined as [[Money supply#M0|M0]]) now account for a tiny fraction of the total debt-based M3 [[money supply]] in all modern debt-based economies (and debt-free M0 is also generally less than 10% of the total [[Money supply#M2|M2]] money supply in most developed economies).<ref>[http://www.dollardaze.org/blog/?post_id=00216 Global Money Supply Ratios]</ref>

Instead of [[money]] being created "indirectly" and "furtively" at the point of loan creation by the private banking system, with periodic bailouts to already-rich bankers and a "boomerang" boom-bust cycle as debt levels expand and contract, this debt-free "pure fiat" money would be created directly and openly by the democratically elected government and permanently issued to its citizenry by way of instruction to the private banking system. An example would be the coining of a trillion dollar platinum coin by the US government to pay off some of the Federal debt and continue its deficit spending in times of recession or depression. There would be no requirement for this money to returned (plus interest) and be extinguished as a condition of its creation, which is the central feature of all debt money systems.

Michael Rowbotham argues that this system of "debt-free" money issuance would not dramatically raise consumer prices (or at least would not be as inflationary or as dysfunctional as the current compounding debt-based system). He argues that this would also reduce overconsumption and the associated environmental damage associated with debt-based consumerism. It would also give individuals the free time to engage once again in non-marketable religious, artistic and recreational activities if they chose to do so.<ref name="death"/>

It is acknowledged that, in the absence of tax rates which ensure the return of this "pure" fiat to government coffers, this would be "inflationary" in the traditional sense, but proponents of debt-free fiat money issuance argue that if this "pure" government spending is directed to capital works projects and other long-term projects, this "pure" fiat money issuance would not result in excess price inflation, although it would dramatically increase base money. Michael Rowbotham argues that if bank reserve and capital ratios were increased and bank regulations on derivatives were imposed ''at the same time'' as the increase in "pure" base money was occurring, the two policies would balance each other out and no appreciable price inflation would be felt by the public at large.<ref name="death"/> The increase in base money would be inflationary, but the increase in reserve requirements would be deflationary, resulting in no significant net increase in the total money supply (assuming the government was sufficiently skilled in balancing these forces through the transition to a predominantly debt-free monetary system).

It is to be expected that these policies would be violently opposed by the private banking "elite", as it would render impotent their control over the money supply, dissipating this crucial decision-making power away from its current power base, from private banks to elected governments.<ref>[http://www.thenewamerican.com/economy/economics/item/14238-obama%E2%80%99s-trillion-dollar-coin-exposes-federal-reserve-scam Obama’s Trillion-Dollar Coin Exposes Federal Reserve Scam], Alex Newman, ''New American''</ref><ref>[http://webofdebt.wordpress.com/2013/01/18/the-trillion-dollar-coin-joke-or-game-changer/#more-5323 The Trillion Dollar Coin], Ellen Hodgson Brown</ref> It would also be likely to reduce [[economic growth]], dramatically increase the cost of labor and, potentially, result in an exacerbation of price inflation and malinvestment.<ref>[http://globaleconomicanalysis.blogspot.com/2010/12/fatally-flawed-end-fed-proposal-from.html Fatally Flawed End the Fed Proposal], MISH</ref> However, Rowbotham, Zarlenga and Still all argue that this proposal would address the problem of inequality inherent in a debt-based monetary system and reduce the devastating impact of personal [[bankruptcy]] and allow individual citizens to quickly recover from financial hardship.<ref name="death"/> They also argue that this social security measure (and government spending in general) would not have to be paid for by future generations from future streams of [[income tax]].<ref name="death"/>

====Criticism of "Greenbacker" debt-free money issuance====
In late 2010, [[Ellen Hodgson Brown]] and Austrian School commentator [[Gary North]] engaged in an intense debate over the direction of [[monetary reform]], with gold-standard supporter [[Gary North]] accusing Brown of going down a path that inevitably leads to the economics of fascism and hyperinflation.<ref>[http://www.lewrockwell.com/north/north908.html Criticism of Ellen Hodgson Brown]</ref><ref>[http://www.lewrockwell.com/north/north912.html Ellen Betrays], Gary North</ref> Government deficit spending funded with either paper money or compliant public bank lending is not a substitute for private consumption due to the inability of coercive goverment to invest rationally long-term, given the [[economic calculation problem]] inherent in socialized economies and the interests of governments and politicians being very different from the average consumer.<ref>[http://dailyreckoning.com/downside-after-the-returns-stop-diminishing-part-ii/ Nazi Germany], Bill Bonner</ref> North argues that it is not possible to trust a coercive, non-market entity - government - to limit its spending in circumstances where pure fiat money is in the hands of politicians and that [[inflation]], being an invisible tax, is much harder to resist than regular taxes. Greedy, corrupt, short-sighted politicians could buy off special interest groups to get elected and the general public could only watch on the sidelines as the purchasing power of their dollars steadily declines; this decline would be blamed on currency speculators and eventually foreign currencies (including "natural" monies such as gold and silver and copper) would have to be banned and confiscated from the public to ensure continued use of depreciating fiat.<ref name="North_Congress">Gary North. [http://www.garynorth.com/public/7030.cfm "Economic Error #15: Congress Can Safely Be Trusted to Manage the Money System Without Any Price Inflation."]. Referenced 2011-02-24.</ref> The fundamental error of Brown's analysis, according to North, is that Brown expects the source of the problem - corrupt governments bought and paid for by bankers - to be the source of the solution. She calls for a move away from war spending, whilst recoginizing that the current fiat monetary system favors government spending on war.<ref>[http://www.marketoracle.co.uk/Article28831.html More Efficient Ways to Stimulate Economy], Ellen Hodgson Brown</ref> To date, she has yet to reconcile these inconsistencies in her writings.

[[Mike Shedlock]] agrees with the abolition of fractional reserve banking, but criticizes the concept on similar grounds as North. Commenting on a bill to end the Fed introduced by Representative [[Dennis Kucinich]], he wrote: "Neither sound money nor the free market comes from printing money into existence. Arguably the only thing worse than the Fed printing money out of thin air is Congress printing money out of thin air for the purpose of full employment and/or any other absurd ideas Congress has."<ref>[http://www.marketoracle.co.uk/Article25175.html Kucinich's End the Fed campaign fatally flawed], Mike Shedlock.</ref>

Peter Schiff also believes getting rid of the Fed and returning money issuance to Congress would be worse than the current system.<ref>[http://www.youtube.com/watch?v=kEDmj3qocag Doug Casey Interview with Peter Schiff]</ref>

Austrians criticize leftists' inability to see that printing money and government spending is not the same as voluntary spending by private individuals as government spending distorts the capital structure; does not result in lasting economic growth due to the [[economic calculation problem]]; and is not subject to normal cautious profit and loss considerations given that the government can continually recover from errors by simply printing the money it spends.<ref>[http://www.marketoracle.co.uk/Article28831.html More Efficient Ways to Stimulate Economy], Ellen Hodgson Brown</ref><ref>[http://www.youtube.com/watch?v=qDKvSMZNgjc Peter Schiff Rips Paul Krugman]</ref> They also avoid or ignore the fact that historically governments have often acted in their own self-interest and concentrated power in themselves and their corrupt associates and families rather than benignly ruling for the benefit of the populace and their long-term interests. Every sovereign - without exception - that has been given the unfettered power to print fiat money has eventually printed too much debt-free money and in the end had to ban competing currencies (such as foreign currency or metallic money), and face revolt, revolution, hyperinflation or other social catastrophe.<ref>[http://www.marketoracle.co.uk/Article39762.html Fiat Currency Collapse]</ref>

====Debt-free money issuance: Support from free market Austrians====
In contrast to Gary North's attacks on "Greenbacker" Ellen Hodgson Brown, and Mike Shedlock's criticism of debt-free money printing by Congress as the worst of all choices, noted Austrian monetary economist Joseph Salerno has voiced his support for the idea of debt-free money issuance ''in comparison to the current debt-based system'', if a choice is to be made between the two.<ref>[http://www.mises.org/daily/6350/The-Flipside-of-the-Trillion-Dollar-Coin The Flipside of the Trillion Dollar Coin]</ref> In his defense of the trillion dollar coin idea, he states the following:<ref>[http://www.mises.org/daily/6350/The-Flipside-of-the-Trillion-Dollar-Coin The Flipside of the Trillion Dollar Coin]</ref>

{{quote|Let me be clear: my intention is not to deny that the trillion-dollar coin is a ludicrous and dangerous idea; it is rather to point out that the Fed is a more ludicrous and dangerous idea.}}

In relation to the "dangers" of Congressional control of the money supply, Salerno responds as follows:<ref>[http://www.mises.org/daily/6350/The-Flipside-of-the-Trillion-Dollar-Coin The Flipside of the Trillion Dollar Coin]</ref>

{{quote|Obviously, congressional control of the fiat money supply is far from the ideal monetary system, which involves the complete separation of government and money through the establishment of a commodity money, such as gold, the supply of which is determined exclusively by market forces. Nonetheless, there is much merit in replacing the opaque and pseudo-scientific control of "the money supply process" by the entrenched bureaucrats of the Fed with overtly political control of money by elected officials and partisan Administration appointees.}}

Salerno outlines a number of advantages of "simple inflation" over the current debt-based round-about system of money creation:<ref>[http://bastiat.mises.org/2013/05/bring-on-the-helicopter-money-and-gut-the-fed/ Bring on the Helicopter Money - and Gut the Fed], Joseph Salerno</ref>

{{quote|...as a permanent policy, it would be a wonderful device for wresting control of monetary policy from un-elected, secretive, and pseudo-scientific Fed bureaucrats and placing it under a Congress subject to popular scrutiny and elections. Of course this would not be an ideal system, which would be a hard money consisting of a market supplied commodity like gold. But it would have a number of significant advantages over the present Fed-dominated system. First, as just noted, money creation by Congress would be far more transparent and understandable to the public than the arcane procedures by which the Fed expands the money supply. Second, the injection of new money directly into the economy via government purchases of goods and services would avoid the continual and systematic distortion of financial markets and the interest rate currently caused by Fed open market operations. This process of “simple inflation” as Mises called it would, therefore, certainly produce rising prices but would not generate business cycles of recurring booms and busts. Finally, the Fed could no longer operate as a bailer-outer of last resort, surreptitiously bailing out gigantic domestic and foreign financial institutions in the absence of discussion and consent by Congress and the knowledge of the public.}}

===Public Fractional Reserve Banks===

[[Ellen Hodgson Brown]] supports nationalization of the private banking system once the full losses on the banks' portfolios are recognized.<ref>[http://www.huffingtonpost.com/ellen-brown/restoring-economic-sovere_b_823697.html Restoring Economic Sovereignty], Ellen Hodgson Brown</ref><ref>[http://www.webofdebt.com/articles/new_theory.php Time for a New Theory of Money]</ref><ref>[http://globaleconomicanalysis.blogspot.com/2011/01/steve-keen-responds-to-world-economic.html Exponential Growth], MISH</ref><ref>[http://www.webofdebt.com/articles/force_nationalization.php Foreclosuregate could force bank nationalization]</ref><ref>[http://webofdebt.wordpress.com/2010/12/22/austerity-fails-in-euroland-time-for-some-%e2%80%9cdeficit-easing%e2%80%9d/ Austerity Fails in Europe], Ellen Hodgson Brown</ref> Ellen Hodgson Brown has repeatedly called for the creation of publicly-owned banks similar to the North Dakota model, where the interest earned by these state government-owned banks could be ploughed back into local economies financing public works and local government services instead of being sucked out of local communities into the major commercial banks.<ref>[http://www.marketoracle.co.uk/Article29338.html Why Aren't Banks Lending], Ellen Hodgson Brown</ref> <ref>[http://www.marketoracle.co.uk/Article39053.html Why Bankers Rule the World]</ref> She has cited numerous historical examples where public banks worked successfully for many decades, including in Australia and Costa Rica, as examples of the viability and benefit of public fractional reserve banks.<ref>[http://www.webofdebt.com/articles/commonwealth_bank_aus.php CBA]</ref><ref>[http://www.truthdig.com/report/item/public_banking_in_costa_rica_a_remarkable_little-known_model_20131111 Costa Rica]</ref>

Brown also supported "[[Quantitative easing|QE2]]" - which she described as a necessary and desirable funding of government spending via money printing rather than by the indirect means of issuing of interest-bearing government bonds, which simply allows private bankers to profit from costless money creation.<ref>[http://www.marketoracle.co.uk/Article24443.html QE2 and the Looming Threat of a Crippling Debt Service]</ref><ref>[http://www.marketoracle.co.uk/Article24719.html QE2 and Hyperinflation], Ellen Hodgson Brown</ref>

Many monetary reformers who call on the government to take back the money creation function from debt-supplying private for-profit banks also call for full reserve banking to remove the bank's alleged "embezzlement" and "counterfeiting" abilities.<ref>[http://www.thenewamerican.com/economy/economics/item/14238-obama%E2%80%99s-trillion-dollar-coin-exposes-federal-reserve-scam Obama’s Trillion-Dollar Coin Exposes Federal Reserve Scam], Alex Newman, ''New American''</ref><ref name="marketoracle.co.uk"/><ref>[http://www.monetary.org/ AMI website, calling on full-reserve banking]</ref>

It should be noted that if Austrian claims that [[fractional reserve banking]] produces [[Austrian business cycle theory|business cycles]] is correct, public ownership of banks will not stop periodic economic crises and business cycles from occurring, ''unless'' strong controls and very high reserve ratios are imposed on all banks. Many would consider this "solution" of publicly-owned fractional reserve banks merely perpetuating the problem.

Stephen Zarlenga's AMI organization has strongly criticized Brown's support of fractional reserve banking as perpetuating the very problems she seeks to solve. Jamie Walton, from the AMI, wrote the following review:<ref>[http://www.monetary.org/review-of-ellen-browns-the-web-of-debt/2010/12/ Review of Web of Debt], Jamie Walton</ref>

{{quote|Brown’s plan to takeover (rescue?) the big banks to continue a “fraud” within the safety of government is totally wrong. Placing the “fraud” in government doesn’t make it right, but might make it harder to stop. Does Brown realize that her statements and conclusions are inconsistent, and that what she proposes leads to exactly the same things that she’s claiming to be opposed to?

Experience shows that if the issue of money is unduly affected by commercial incentives, then, over time, “commercial loans” (i.e., debt) will dominate over more direct methods of issue. So we’d be kept in exactly the same position we’re in now: within a totally unnecessary, ever-growing and impossible-to-pay debt trap.

Obviously the sensible action to take is to remove the “fraud” and debt and retain a healthy and competitive banking sector. This is easily done with a law based on the existing provisions in the U.S. Constitution.

But Brown avoids this obvious solution and instead advocates that our government gets into banking.

It seems incredible that Brown is now advocating what she’s described throughout most of the book as fraud, counterfeiting and Ponzi, pyramid or ‘smoke-and-mirrors’ schemes. Why? Perhaps the answer lies in Brown’s apparent confusion and/or fundamental misunderstandings about the nature of money and the role of government in society, and about monetary history and monetary reform.}}

===Left-leaning ideas===
The highly successful "Icelandic Solution" of debt relief for the poor and criminal sanctions against corrupt bankers was implemented by a left-wing government<ref>[http://www.zerohedge.com/news/2013-01-26/only-3-minutes-worth-listening-davos Interview with Iceland's President Olafur Ragnar Grimson]</ref> although some question whether the policies truly reflected left-wing ideas given the constraints on Icelandic policy-making at the time.<ref>[http://reason.com/blog/2012/04/17/why-iceland-presidents-left-wing-critiqu Why Iceland President Left-Wing Critique is Right], ''Reason''</ref>

Some left-leaning [[social democrats]] would also support additional longer-term measures such as ''raising'' minimum wages immediately after a financial crisis (rather than reducing wage rates - which they argue only prolongs the depression through reduced spending), taxing the banking system and the implementation of strongly redistributive income and [[land tax]]es to ensure the financially dispossessed are "replenished" with income. They would also support a [[social security]] [[safety net]] involving the provision of unemployment benefits and government-supplied free medical care, education and other essential services and [[public goods]].<ref>[http://www.youtube.com/watch?v=g4yVhxDTom0 Steve Keen interview with Max Keiser]</ref> It is to be expected however that this coercive regulatory regime would result in the systematic destruction of the entrepreneurial class as profits are squeezed by rising costs. In addition, without the issuance of debt-free [[fiat currency]] the result of these programs would be the persistent, exponential, accumulation of [[government debt]], financed by the [[private banking]] system by the issuance of [[government bonds]]. If not properly managed, this could result in a progressively higher tax burden and may result in higher [[interest rates]] in the long term, as financiers require higher [[interest rates]] to lend to the increasingly indebted central government. Without the issuance of [[debt-free money]] these policies can be self-defeating, with the net result simply being that a larger stream of guaranteed income goes to the [[private bank]]ing system via the issuance of interest-bearing [[government bonds]] (which are purchased by the [[private banks]] "out of nothing" through [[fractional reserve banking]] techniques). This [[government debt]] must then be financed in perpetuity by compulsorily acquired [[tax]]es from future generations.

It could be argued that the early success of extreme so-called "right-wing" (but socialist government-guided) [[fascism]] in [[Nazi Germany]] and [[Italy]] in the period after [[World War I]] was a response to the economic chaos created by the debt-based monetary system in early 20th century [[Europe]]. Some of the economic policies introduced by [[Hitler]] and [[Mussolini]] were in direct response to the economic collapse and social [[anarchy]] caused by soaring government and personal debt levels in both countries in the post-[[Versailles Treaty]] era, and (indirectly) arose from the writings of [[Silvio Gesell]] and others on the nature of the problems associated with a debt-based [[monetary system]]. Although many [[historian]]s justifiably criticize many of the non-economic policies of the [[fascist]] governments of [[Germany]] and [[Italy]] during this period, the [[economics of fascism]] seemed to provide a degree of [[prosperity]] to the populace, and arguably achieved the government's stated objective of restoring economic and social order during the pre-[[World War II]] era.<ref>[http://www.webofdebt.com/articles/bankrupt-germany.php How a Bankrupt Germany Solved its Economic Problems], Ellen Hodgson Brown</ref> These economic policies and their results are the subject of vigorous debate even today.<ref name="North_National_Great">Gary North. [http://www.garynorth.com/public/7009.cfm "Historical Error #27: Hitler's National Socialist Economic Policies Ended the Great Depression in Germany."], ''GaryNorth.Com''. Referenced 2011-02-24.</ref> (See also [[Inflation in Nazi Germany]].)

Similarly it could be argued that [[socialism]] and [[communism]] were movements inspired by the inequalities caused by the intense (and in [[Karl Marx]]'s view unsustainable) concentrations of monetary wealth, power and influence inherent in the practice of [[fractional reserve banking]] in a [[laissez-faire]], [[monopoly]] [[capitalist]] environment (particularly when [[fractional reserve banking]] is combined with a [[gold standard]] or other [[hard currency]] [[monetary system]]).<ref>[http://www.zerohedge.com/news/2013-11-07/marc-faber-warns-karl-marx-was-right Karl Marx Was Right], Marc Faber</ref><ref>[http://www.nakedcapitalism.com/2009/02/steve-keen-roving-cavaliers-of-credit.html ''Roving Cavaliers of Credit'', Steve Keen, with commentary from Yves Smith at Naked Capitalism]</ref>

The [[communist]]/[[socialist]] solution to the problem of [[fractional reserve banking]] is simple: re-enfranchising workers through widespread organization and unionism, complete removal (and if necessary, violent non-democratic removal) of the allegedly "parasitic" financial, capitalist and upper classes, wholesale repudiation of [[government debt]] resulting in complete debt [[default]]; forced [[expropriation]] of [[land]] and wealth from the [[upper classes]] to the dispossessed and needy [[working classes]]; [[nationalization]] of the [[private banks]] (which has required armed [[coup]]s by the [[military]] in some past [[revolution]]s); and the return of the banking function from a dominant, speculative to a subordinate, administrative institution, where the banking system is reduced to a subservient arm of the centralized [[Leviathan]].<ref>[http://www.zerohedge.com/news/2013-11-07/marc-faber-warns-karl-marx-was-right Karl Marx Was Right], Marc Faber</ref> In this system, government-owned banks are directed by government policy; often provide different kinds of loans to different industry sectors at different interest rates depending on the perceived "needs" of the economy and the community; normally have a significant proportion of [[non-performing loan]]s due to weak or non-existent [[bankruptcy]] laws; and periodically "forgive" failed debts in recognition of the impossibility of some businesses in paying this debt money back. In addition, individuals are prohibited from possessing large property holdings, in excess of their individual needs.

It is to be expected that the [[profitability]] of the government-owned banking system would be more stable - but dramatically lower - than that in a debt-based [[capitalist]] economy. It is also to be expected that a significantly higher misallocation of resources could occur in this system, where lending decisions are "infected" by political considerations and are not made on the basis of expected [[return on investment]]. The risk of [[corruption]] in the banking system is also expected to be higher where there is no separation between the political and monetary systems in an economy. Market-oriented [[monetary reform]]ers and [[neo-classical]] economists therefore do not support [[nationalization]] of the [[private banking]] system.

It should be noted that partial [[nationalization]] of the [[private bank]]ing system would only be temporary, as any remaining [[private banks]] could still engage in unlimited [[fractional reserve banking]] and facilitate the eventual acquisition and control of any strategic assets in a partially socialized economic system. It is to be expected that in the absence of complete [[nationalization]] of the banking system, the [[private bank]]ing system would eventually dominate the financial system in any nominally [[socialist]] society.

==Corporatism, Crony Capitalism and Confiscation==
Assuming current trends continue, "Corporatism",<ref>[http://www.lewrockwell.com/2010/04/ron-paul/dont-call-obama-a-socialist/ Corporatism], Lew Rockwell</ref> "Rigged Market Capitalism",<ref>[http://maxkeiser.com/tag/rigged-market-capitalism/ Rigged Market Capitalism]</ref> or so-called "Crony Capitalism"<ref>[http://mises.org/daily/6540/The-American-Economy-is-Not-a-FreeMarket-Economy Crony Capitalism in America]</ref><ref>[http://www.zerohedge.com/news/2013-02-10/guest-post-note-fed-giving-banks-free-money-wont-make-us-hire-more-workers Note To Fed]</ref> will continue.<ref>[http://www.youtube.com/watch?v=zbQq33iTsrw Rigged bank rates]</ref> This means superficial respect for property rights but periodic confiscation when deemed necessary by a government-banker cabal who consider themselves above [[natural law]].<ref>[http://www.zerohedge.com/news/2013-09-18/why-obama-allowed-bailouts-without-indictments Why Obama Allowed Bailouts]</ref> This implies ongoing "immunity" for market manipulating banks on the basis that they are "too big to jail",<ref>[http://moneymorning.com/2012/12/28/too-big-to-jail-its-a-dark-day-for-the-rule-of-law/ Too Big To Jail]</ref><ref>[http://www.rollingstone.com/politics/news/gangster-bankers-too-big-to-jail-20130214 Gangser Bankers: Too Big to Jail], Matt Taibbi. Extract: 'At HSBC, the bank did more than avert its eyes to a few shady transactions. It repeatedly defied government orders as it made a conscious, years-long effort to completely stop discriminating between illegitimate and legitimate money. And when it somehow talked the U.S. government into crafting a settlement over these offenses with the lunatic aim of preserving the bank's license, it succeeded, finally, in making crime mainstream. UBS, meanwhile, was a similarly elemental case, in which the offenses didn't just violate the letter of the law – they threatened the integrity of the competitive system. If you're going to let hundreds of boozed-up bankers spend every morning sending goofball e-mails to each other, giving each other superhero nicknames while they rigged the cost of money (spelling-challenged UBS traders dubbed themselves, among other things, "captain caos," the "three muscateers" and "Superman"), you might as well give up on capitalism entirely and just declare the 16 biggest banks in the world the International Bureau of Prices. Thus, in the space of just a few weeks, regulators in Britain and America teamed up to declare near-total surrender to both crime and monopoly. This was more than a couple of cases of letting rich guys walk. These were major policy decisions that will reverberate for the next generation. Even worse than the actual settlements was the explanation Breuer offered for them. "In the world today of large institutions, where much of the financial world is based on confidence," he said, "a right resolution is to ensure that counter-parties don't flee an institution, that jobs are not lost, that there's not some world economic event that's disproportionate to the resolution we want." In other words, Breuer is saying the banks have us by the balls, that the social cost of putting their executives in jail might end up being larger than the cost of letting them get away with, well, anything. This is bullshit, and exactly the opposite of the truth, but it's what our current government believes. From JonBenet to O.J. to Robert Blake, Americans have long understood that the rich get good lawyers and get off, while the poor suck eggs and do time. But this is something different. This is the government admitting to being afraid to prosecute the very powerful – something it never did even in the heydays of Al Capone or Pablo Escobar, something it didn't do even with Richard Nixon. And when you admit that some people are too important to prosecute, it's just a few short steps to the obvious corollary – that everybody else is unimportant enough to jail. An arrestable class and an unarrestable class. We always suspected it, now it's admitted.'</ref> and the continued collusion of central banks with private banks to manipulate an increasing number of financial and commodity markets in a futile effort to control capitalism for their own survival, eventually destroying any semblance of functioning capitalism resulting in an increasingly volatile financial system.<ref>[http://www.zerohedge.com/news/2013-04-26/illuminati-were-amateurs-matt-taibbi-explains-how-everything-rigged The Illuminati Were Amateurs], Matt Taibbi. Extract: "Conspiracy theorists of the world, believers in the hidden hands of the Rothschilds and the Masons and the Illuminati, we skeptics owe you an apology. You were right. The players may be a little different, but your basic premise is correct: The world is a rigged game. We found this out in recent months, when a series of related corruption stories spilled out of the financial sector, suggesting the world's largest banks may be fixing the prices of, well, just about everything."</ref><ref>[http://www.youtube.com/watch?v=zbQq33iTsrw Rigged bank rates]</ref> Some believe we have already reached this point where world financial markets are completely artificial and prices in many markets no longer reflect reality.<ref>[http://www.youtube.com/watch?v=zbQq33iTsrw Rigged bank rates]</ref><ref>[http://www.gata.org/node/7096 Fed's blueprint for market manipulation]</ref> Even former Fed officials now admit QE simply involves newly created money being gifted to large Wall Street banks at the expense of the general population.<ref>[http://www.zerohedge.com/news/2013-11-12/former-fed-quantitative-easer-confesses-aplogizes-i-can-only-say-im-sorry-America I am sorry America]. Quote: 'In its almost 100-year history, the Fed had never bought one mortgage bond. Now my program was buying so many each day through active, unscripted trading that we constantly risked driving bond prices too high and crashing global confidence in key financial markets. We were working feverishly to preserve the impression that the Fed knew what it was doing... Trading for the first round of QE ended on March 31, 2010. The final results confirmed that, while there had been only trivial relief for Main Street, the U.S. central bank's bond purchases had been an absolute coup for Wall Street. The banks hadn't just benefited from the lower cost of making loans. They'd also enjoyed huge capital gains on the rising values of their securities holdings and fat commissions from brokering most of the Fed's QE transactions. Wall Street had experienced its most profitable year ever in 2009, and 2010 was starting off in much the same way. You'd think the Fed would have finally stopped to question the wisdom of QE. Think again. Only a few months later—after a 14% drop in the U.S. stock market and renewed weakening in the banking sector—the Fed announced a new round of bond buying: QE2. Germany's finance minister, Wolfgang Schäuble, immediately called the decision "clueless." That was when I realized the Fed had lost any remaining ability to think independently from Wall Street. Demoralized, I returned to the private sector. Where are we today? The Fed keeps buying roughly $85 billion in bonds a month, chronically delaying so much as a minor QE taper. Over five years, its bond purchases have come to more than $4 trillion. Amazingly, in a supposedly free-market nation, QE has become the largest financial-markets intervention by any government in world history.'</ref> Ongoing purchases of government bonds by central banks continue every month, keeping interest rates artificially low and allowing government spending to continue to expand, along with a volatile heavily indebted private economy.<ref>[http://www.youtube.com/watch?v=G1l7DY8kdz0 The Fed Unspun]</ref> If these "emergency" QE measures continue indefinitely this will eventually result in indefinite depression as markets are manipulated beyond the control even of the central banks, prohibiting market "clearing" and prohibiting the reallocation of resources away from the government and financial sectors.<ref>[http://prudentbear.com/index.php/guestcommentaryview?art_id=10742 Bernanke's Balance Sheet Ensures Disaster], Michael Pento</ref><ref>[http://www.zerohedge.com/news/2013-01-26/only-3-minutes-worth-listening-davos Interview with Iceland's President Olafur Ragnar Grimson]</ref><ref>[http://www.zerohedge.com/news/2013-02-06/guest-post-all-well All Is Well], Jim Quinn</ref><ref>[http://www.youtube.com/watch?v=zbQq33iTsrw Rigged bank rates]</ref> Recent events in Cyprus and Greece are an indication of what will happen in other countries should the current system continue - periodic financial crises and bank runs from capital controls on marginal economies resulting in impoverishment of the general populace.<ref>[http://www.marketoracle.co.uk/Article39809.html Greece vs Iceland]</ref><ref>[http://www.zerohedge.com/news/2013-03-22/ecb-set-fair-cypriot-standard-living-capital-controls Capital Controls]</ref> Without debt relief, "following the rules" of debt will mean that the government will have to steal simply to pay back creditors.<ref>[http://www.marketoracle.co.uk/Article39732.html Cyprus Wealth Confiscation Scheme]</ref> Ultimately, with a compliant populace, bankers and governments will periodically, without warning, "steal", "tax" or otherwise confiscate deposits, savings and wealth to keep the financial system alive, whilst continuing to try grow the money supply through fractional reserve banking.<ref>[http://www.zerohedge.com/news/2013-03-22/ecb-set-fair-cypriot-standard-living-capital-controls Capital Controls]</ref>
Without reform or revolution, this perverted Keynesian<ref>[http://mises.org/journals/fm/January2013.pdf Two Sides of the Same Debased Coin], Hunter Lewis</ref> "upside down" combination of "socialism for the rich and capitalism for the poor" will inevitably result in chronic cascading "supply" crises in commodity markets as price signals no longer "work" due to market manipulation and price "smoothing" stifling price rises that must occur for production of essential commodities to remain profitable, thereby ultimately resulting in actual supply and demand mismatches in many essential commodity markets (such as the gold and silver markets).<ref>[http://www.marketoracle.co.uk/Article38893.html Shock Year 2013]</ref><ref>[http://www.zerohedge.com/news/2013-02-09/guest-post-us-economy-now-dangerously-detached-reality US Economy Detached From Reality]</ref> This will ultimately produce a tiny (but massively wealthy) speculative banker class,<ref>[http://www.zerohedge.com/news/2013-04-03/david-stockman-keynesian-endgame The Keynesian Endgame], David Stockman</ref><ref>[http://www.zerohedge.com/news/2013-02-06/guest-post-all-well All Is Well], Jim Quinn</ref> a bloated and ineffective government sector, a private sector that mainly services lucrative government contracts (or is otherwise starved of capital and funding) and the complete destruction of the middle class, resulting in a steadily increasing disenfranchised, desperate, intergenerational underclass.<ref>[http://www.zerohedge.com/news/2013-06-17/rotting-decaying-and-bankrupt-%E2%80%93-if-you-want-see-future-america-just-look-Detroit America's Future is Detroit]</ref><ref>[http://www.zerohedge.com/news/2013-02-06/guest-post-all-well All Is Well], Jim Quinn</ref><ref>[http://www.globalresearch.ca/western-civilization-and-the-economic-crisis-the-impoverishment-of-the-middle-class/18386 Western Civilization and the Economic Crisis]</ref><ref>[http://www.youtube.com/watch?v=DVxyGxEcMqQ Max Keiser on the UK Economy]</ref><ref>[http://mises.org/journals/fm/January2013.pdf Two Sides of the Same Debased Coin], Hunter Lewis</ref><ref>[http://www.youtube.com/watch?v=zbQq33iTsrw Rigged bank rates]</ref><ref>[http://www.zerohedge.com/news/2013-04-03/david-stockman-keynesian-endgame The Keynesian Endgame], David Stockman</ref><ref>[http://www.marketoracle.co.uk/Article39449.html An Orwellian America], Gordon T Long</ref>

David Stockman has the following comments in relation to the current monetary system:<ref>[http://mises.org/daily/6397/The-Keynesian-Endgame The Keynesian Endgame]</ref>

<blockquote>Accordingly, the central banking branch of the state remains hostage to Wall Street speculators who threaten a hissy fit sell-off unless they are juiced again and again. Monetary policy has thus become an engine of reverse Robin Hood redistribution; it flails about implementing quasi-Keynesian demand–pumping theories that punish Main Street savers, workers, and businessmen while creating endless opportunities, as shown below, for speculative gain in the Wall Street casino.

At the same time, Keynesian economists of both parties urged prompt fiscal action, and the elected politicians obligingly piled on with budget-busting tax cuts and spending initiatives. The United States thus became fiscally ungovernable. Washington has been afraid to disturb a purported economic recovery that is not real or sustainable, and therefore has continued to borrow and spend to keep the macroeconomic “prints” inching upward. In the long run this will bury the nation in debt, but in the near term it has been sufficient to keep the stock averages rising and the harvest of speculative winnings flowing to the top 1 percent.

The breakdown of sound money has now finally generated a cruel endgame. The fiscal and central banking branches of the state have endlessly bludgeoned the free market, eviscerating its capacity to generate wealth and growth. This growing economic failure, in turn, generates political demands for state action to stimulate recovery and jobs.

But the machinery of the state has been hijacked by the various Keynesian doctrines of demand stimulus, tax cutting, and money printing. These are all variations of buy now and pay later—a dangerous maneuver when the state has run out of balance sheet runway in both its fiscal and monetary branches. Nevertheless, these futile stimulus actions are demanded and promoted by the crony capitalist lobbies which slipstream on whatever dispensations as can be mustered. At the end of the day, the state labors mightily, yet only produces recovery for the 1 percent.</blockquote>

Paul Krugman has criticized David Stockman's analysis of rising debt levels.<ref>[http://krugman.blogs.nytimes.com/2013/04/03/debt-and-david-stockman/ Debt and David Stockman]</ref> Others have criticized Paul Krugman's analysis.<ref>[http://lewrockwell.com/anderson/anderson362.html Should Government Try to Extend Booms Indefinitely?]</ref> Paul Krugman's argument (essentially) is that debt does not matter because we (mostly) owe it to ourselves, but he never advocates repudiation or cancellation of the debt on the same basis.

==Status under current systems==
Whatever their political leanings, nearly all [[monetary reform]]ers agree that the current financial and economic system imposed on the populace by governments worldwide, involving coercive legal tender laws,<ref>[http://lewrockwell.com/paul/paul766.html Legalize Currency Competition], Ron Paul</ref> the perpetuation of government-protected private banks (organizations legally permitted to engage in unlimited and inherently speculative fractional-reserve banking activities during boom times, with recourse to monopoly central banks - and in some cases corrupt governments<ref>[http://www.prudentbear.com/index.php/thebearslairview?art_id=10513 The Evils of Crony Capitalism], Martin Hutchinson</ref><ref>[http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100008812/irelands-debt-servitude/ Ireland's Debt Servitude], Ambrose Evans-Pritchard, UK Telegraph</ref> - to provide bail outs of fiat money during downturns), "deregulated" labor markets (which have the effect of increasing the marketization and commodification of human activity), strictly enforced bankruptcy laws (which permit the periodic transfer of assets from failed bankrupt investors caught at the end of "Ponzi-scheme" cycles to the private banks and their associates) and personal income tax (which, combined with periodic economic collapses, dispossesses the majority of the populace from their accumulated income and wealth and transfers this wealth to the owners of illicit government bonds) amounts to an inherently unstable, unjust and dysfunctional financial system resulting in environmentally damaging over-consumption and massive worldwide [[malinvestment]]s,<ref>[http://www.mises.org/daily/6578/Central-Banks-The-True-Centers-of-Political-Power Central Banks]</ref> the systematic and irredeemable destruction of fertile arable land,<ref>[http://www.huffingtonpost.co.uk/2011/09/27/natural-resources-being-e_n_982576.html Natural Resources Being Exhausted]</ref> and the government-sponsored (and ultimately unsustainable) oppression of the indebted, impoverished and economically enslaved majority.<ref>[http://www.zerohedge.com/news/2013-02-06/guest-post-all-well All Is Well], Jim Quinn</ref><ref>[http://www.thenewamerican.com/economy/economics/item/14238-obama%E2%80%99s-trillion-dollar-coin-exposes-federal-reserve-scam Obama’s Trillion-Dollar Coin Exposes Federal Reserve Scam], Alex Newman, ''New American''</ref><ref>[http://mises.org/daily/4893 ''The Ethics of Money Production''], Jorg Guido Hulsmann</ref><ref>[http://www.youtube.com/watch?v=QIBFvikcl7g Stacy Herbert and Max Keiser: Flaming Banks] Max Keiser Quote: "Well, ''it's slavery''. You know, they had slavery, then they outlawed slavery but in its place were the Jim Crow laws: 'Coloreds Only. Whites Only.' Then the banks got involved and they have ''financial'' Jim Crow laws. If you're black and living in the ghetto, you are charged 40, 50, 60% to borrow money. If you're white and you work on Wall Street, you're charged ''negative'' 5% to borrow money. That's a ''financial'' Jim Crow law that goes down color lines. Now the big corporations who realize America's becoming a new ''plantation of slaves'' - they're saying, 'Forget it! We don't even make a pretense that there's a "middle class". Here's a product for those living on the plantation. And here's the product for the man livin' in the Big House!'"</ref><ref>[http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/3/25_Sinclair_-_Cyprus%2C_Gold%2C_Russia_%26_A_New_Monetary_System.html Jim Sinclair Interview]. Quote: "He [Paul Craig Roberts] spoke about the banks moving to enslave humanity, and he said the Cypriots had to do whatever it took to put a stop to this."</ref><ref>[http://www.marketoracle.co.uk/Article40103.html Americans Loving Their Servitude], James Quinn</ref>

==See also==
* [[Austrian Business Cycle Theory]]
* [[Central bank]]
* [[Monetary reform]]
* [[Murray Rothbard]]
* [[Ron Paul]]

==Notes==
{{reflist|4}}

==Links==
* [http://www.thefreemanonline.org/features/taking-money-back-part-i/ Taking Money Back: Part I] by [[Murray Rothbard|Murray N. Rothbard]], September 1995
* [http://www.thefreemanonline.org/features/fractional-reserve-banking-part-ii/ Fractional Reserve Banking: Part II] by Murray N. Rothbard, October 1995 (reprinted at [[LRC]] [http://www.lewrockwell.com/rothbard/rothbard239.html here])

*[http://econpapers.repec.org/paper/wpawuwpma/0203005.htm Fractional Reserve Banking as Economic Parasitism]
*[http://www.prosperityuk.com/prosperity/links/links.html Monetary Reform websites]
*[http://www.relfe.com/plus_5_.html I want the Earth Plus 5%]
*[http://www.youtube.com/watch?v=JUFxsZF5E48&list=LLG5bLlG3NQ8sHur0Oco-CmQ&feature=mh_lolz How Our Monetary System Works and Fails]
*[http://www.youtube.com/watch?v=jqvKjsIxT_8 Money As Debt (videoplay animation)]
*[http://www.youtube.com/watch?v=swkq2E8mswI&feature=like-suggest&list=UL The Secret of Oz (documentary video)]
*[http://dailyreckoning.com/ Daily Reckoning]
*[http://jsmineset.com/ Jim Sinclair's MineSet]
*[http://www.lewrockwell.com/ LewRockwell.com]
*[http://www.marketoracle.co.uk/ Market Oracle]
*[http://maxkeiser.com/ Max Keiser]
*[http://globaleconomicanalysis.blogspot.com/ MISH]
*[http://www.prudentbear.com/ PrudentBear.com]
*[http://www.youtube.com/watch?v=Bx5Sc3vWefE 12 Year Old Victoria Grant's Speech]
*[http://www.webofdebt.com/ Web of Debt]
*[http://www.zerohedge.com/ Zero Hedge]

{{DEFAULTSORT:Criticism Of Fractional-Reserve Banking}}
[[Category:Argumentation]]
[[Category:Money]]

Criticism of fractional reserve banking

2014-01-12T02:28:08Z

Karmaisking: /* Typical criticisms */

{{main|Fractional-reserve banking}}
'''Criticisms of [[fractional reserve banking]]''' and [[central bank|central banking]] have been put forward from a variety of perspectives, although the most vigorous and sustained criticism now comes from libertarians and anarcho-capitalists such as economists [[Jesús Huerta de Soto]] and [[Jörg Guido Hülsmann]], American politician [[Ron Paul]], and commentators such as historian Thomas Woods, Jim Grant of ''Grant's Interest Rate Observer'' and former US Budget Director David Stockman.<ref>[http://www.philippbagus.com/archivos/Working%20paper%20deposits%20loans%20and%20banking%20bagus%20howden%20block.pdf Deposits, Loans and Banking: Clarifying the Debate], Philipp Bagus, David Howden and Walter Block</ref><ref>[http://blog.mises.org/16521/fantastic-speech-by-de-soto/ Jesús Huerta de Soto Speech]</ref><ref>[http://mises.org/daily/5174/Life-with-the-Fed-Sunshine-and-Lollipops Life with the Fed], Thomas Woods</ref><ref>[http://mises.org/daily/5146/Over-to-You-H-Parker-Willis Over to you H Parker Willis], Jim Grant</ref><ref>[http://www.youtube.com/watch?v=1VcN_Z6L0jM&feature=player_embedded#at=609 James Grant Interview with James Turk]</ref><ref>[http://mises.org/daily/5113/The-End-of-Sound-Money-and-the-Triumph-of-Crony-Capitalism The End of Sound Money and the Triumph of Crony Capitalism], David Stockman, Henry Hazlitt Memorial Lecture, Austrian Scholar's Conference</ref><ref>[http://www.lewrockwell.com/orig11/stockman6.1.1.html Crony Capitalism Strikes Again], David Stockman</ref><ref>[http://www.lewrockwell.com/orig11/stockman6.1.1.html David Stockman Interview - Blame the Fed]</ref><ref>[http://www.zerohedge.com/news/2013-04-03/david-stockman-keynesian-endgame The Keynesian Endgame], David Stockman</ref><ref>[http://www.lewrockwell.com/2013/10/david-stockman/its-sundown-in-america/ Sundown in America], David Stockman</ref><ref>[http://www.lewrockwell.com/rockwell/imperative-sound-money.html The Social Imperative of Sound Money], Lew Rockwell</ref><ref>[http://lewrockwell.com/stockman/stockman16.1.html The Forgotten Cause of Sound Money]</ref><ref>[http://mises.org/daily/6397/The-Keynesian-Endgame The Keynesian Endgame]</ref> Most in the mainstream (both on the left and right) remain silent on the issue of fractional reserve banking and central banking,<ref>[http://www.lewrockwell.com/lewrockwell-show/2008/10/31/58-americas-slow-motion-fascist-coup/ Naomi Wolf Interview with Lew Rockwell], Lew Rockwell: "I've frankly never understood why people on the Left are ''not'' upset about the Federal Reserve. If you look back to the history..." Wolf: "We probably don't understand it!" Lew Rockwell:"...but you know the founding of the Fed before the law was, you know, with bipartisan support signed in 1913, the Federal Reserve Act was drafted at J.P. Morgan's private club - it's sounds like a conspiracy story, but I guess it sort of is - on Jekyll Island Georgia...Big bankers wrote the Federal Reserve Act for their benefit!"</ref><ref>[http://www.lewrockwell.com/rockwell/imperative-sound-money.html The Social Imperative of Sound Money], Lew Rockwell: "I find it sickening that there are so few voices outside the Austrian School that will stand up to this policy [of fiat money, fractional reserve banking and central banking]."</ref> although past critics have included mainstream economists such as Irving Fisher,<ref>''100% Money'', Irving Fisher</ref><ref>[http://en.wikipedia.org/wiki/A_Program_for_Monetary_Reform ''A Program for Monetary Reform'']</ref> and [[Milton Friedman]].<ref>Friedman, M., A Program for Monetary Stability, New York, Fordham University Press, 1960, pp. 65</ref><ref>[http://mises.org/daily/3108 The Social Imperative of Sound Money], Lew Rockwell: "I find it sickening that there are so few voices outside the [[Austrian School]] that will stand up to this policy (of [[fiat money]]/[[fractional reserve banking]]/[[central bank]]ing)".</ref> Within the economics profession, most criticisms are from the [[Austrian School]].<ref>[http://mises.ca/posts/blog/illogic-in-fractional-reserve-banking/ Illogic in Fractional Reserve Banking], James E. Miller</ref><ref>[http://mises.org/media/4014 The Economics of Legal Tender Laws], [[Jorg Guido Hulsmann]] (includes detailed commentary on [[fractional reserve banking|FRB]])</ref><ref>[http://mises.org/store/Money-Bank-Credit-and-Economic-Cycles-P290C0.aspx Money, Bank Credit and Economic Cycles], Jesus Huerta de Soto, Mises Institute ISBN: 978-1-933550-39-8</ref><ref>[http://mises.org/store/Meltdown-P557.aspx ''Meltdown''], Tom Woods, Regnery Press ISBN: 9781596985872</ref><ref>[http://www.marketoracle.co.uk/Article25212.html The Faults of FRB], Thorsten Polleit</ref> There are also critics from outside the economics profession who advocate [[monetary reform]].<ref>[http://www.nakedcapitalism.com/2010/12/matt-stoller-end-this-fed.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capitalism%29 End This Fed], Matt Stoller</ref><ref>For an example of the writings of these groups, see [http://www.bilderberg.org/monref.htm this] contribution from Bilderberg.org</ref><ref>[http://www.youtube.com/watch?v=VMngK0t5WkY Max Keiser]</ref><ref>[http://www.marketoracle.co.uk/Article28533.html The Global Debt Crisis], Ellen Hodgson Brown</ref><ref>[http://www.mises.org/daily/6358/The-Backroom-World-of-Central-Banking Lords of Finance]</ref>

==Terminology==

Critics of fractional reserve banking and the related fiat paper monetary system may refer to it by the term '''debt-based monetary system''',<ref>[http://www.thenewamerican.com/economy/economics/item/14238-obama%E2%80%99s-trillion-dollar-coin-exposes-federal-reserve-scam Obama’s Trillion-Dollar Coin Exposes Federal Reserve Scam], Alex Newman, ''New American''</ref><ref>[http://mises.org/daily/4631 Is Our Money Based On Debt?], Robert Murphy</ref><ref name="speech">For an example of the public use of the term, see the [http://www.prosperityuk.com/prosperity/articles/earl.html speech] of the Earl of Caithness in the House of Lords on 5 March 1997</ref> or '''credit-based monetary system'''.<ref>For example of the public use of the term, see this speech given by [[Zhou Xiaochuan]], [http://www.bis.org/review/r090402c.pdf Reform the monetary system], 23 March 2009 (BIS), and this article, [http://www.nakedcapitalism.com/2009/02/steve-keen-roving-cavaliers-of-credit.html ''Roving Cavaliers of Credit''] by Steve Keen (with commentary by Yves Smith)</ref><ref>[http://globaleconomicanalysis.blogspot.com/2010/09/myths-about-whats-economically.html Myths], MISH</ref><ref>[http://globaleconomicanalysis.blogspot.com/2010/07/are-we-trending-towards-deflation-or-in.html Deflation], MISH</ref><ref>[http://globaleconomicanalysis.blogspot.com/2008/04/deflation-in-fiat-regime.html Deflation In A Fiat Regime?], MISH</ref> They may also refer to money created in parallel with debt as '''debt money''' or '''endogenous money''', reflecting the fact that virtually all new money is currently created by people or businesses or governments further indebting themselves to banks.<ref name="death"/><ref>[http://www.debunkingeconomics.com/Papers/Money/KeenModellingEndogenousMoneyICAPE.pdf Endogenous Money], Steve Keen</ref> This monetary system is called "endogenous" because the money supply is flexible, expanding in parallel with the demand for debt and stalling or contracting when demand for debt declines.<ref>[http://www.debunkingeconomics.com/Papers/Money/KeenModellingEndogenousMoneyICAPE.pdf Endogenous Money], Steve Keen</ref> Some consider this a perverse and dysfunctional way of introducing new money into the economy.<ref name="death"/>

The term, "debt-based monetary system," and related terms such as "debt money" are not used by conventional economists. Mainstream economists often refer to "debt money" by its antonym "credit" and distinguish between types of money only ''after'' the money is created. The very definition of "money" and the distinction between "debt" and "money" (and their respective economic effects) are still sources of vigorous ongoing debate.<ref>[http://www.youtube.com/watch?v=s8HnN8Htr1M David Graeber's Interview with Max Keiser]</ref><ref>[http://lewrockwell.com/wile/wile25.1.html Daily Bell Interview: Dr. Joseph Salerno]</ref><ref>[http://mises.org/daily/5052/Deflation-Confusion-Money-Is-Not-Credit Money Is Not Credit], Robert Blumen</ref><ref>[http://globaleconomicanalysis.blogspot.com/2009/02/fiat-world-mathematical-model.html Fiat World], MISH</ref><ref>[http://globaleconomicanalysis.blogspot.com/2010/09/myths-about-whats-economically.html What's Economically Important], MISH</ref> Mainstream economists rarely if ever discuss the origins of modern money and generally do not actively discuss or comment on the fact that virtually all money is now created through individuals, or businesses, or governments going into debt to government-sponsored commercial banks.<ref>[http://mises.org/daily/3108 The Social Imperative of Sound Money], Lew Rockwell</ref><ref>For an example of the mainstream use of the term "credit" instead of "debt-money" see [http://www.ft.com/cms/s/bdfa429e-17a2-11dd-b98a-0000779fd2ac,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2Fbdfa429e-17a2-11dd-b98a-0000779fd2ac.html&_i_referer=http%3A%2F%2Fwww.ft.com%2Fhome%2Fasia this] example from the Financial Times, 1 May 2008</ref> Discussion around the nature of "debt-based" money and the arguments over its effects on the economy are notably absent from most established mainstream academic economic publications<ref>Paul Krugman, writing at [http://www.slate.com/id/9593 Slate.com], stated that the Austrian theory of business cycles was "about as worthy of serious study as the phlogiston theory of fire".</ref> and most mainstream economists instead argue that the origin of different kinds of money (and the volume of their issuance) does not really matter, at least in the long run.<ref>[http://www.lewrockwell.com/wenzel/wenzel87.1.html Senior Fed Economist Calls Ron Paul a Pinhead]</ref> This mainstream idea is referred to as the theory of "money neutrality".<ref>[http://www.lewrockwell.com/wenzel/wenzel87.1.html Senior Fed Economist Calls Ron Paul a Pinhead]</ref><ref>[http://mises.org/daily/5172/Is-Inflation-Harmless-or-Even-Good Is Inflation Harmless or Even Good?], Robert Murphy</ref><ref>[http://libertarianpapers.org/articles/2011/lp-3-14.pdf Free Banking and the Structure of Production], Dan Mahoney</ref> Some commentators have speculated that the unusual "silence" around the topics of fractional reserve banking and central banking and the staunch refusal to consider alternative theories of money can be attributed to the simple fact that many economists are on the payroll of the major commerical or central banks of the world and are beholden to those banks for their livelihood.<ref>[http://www.safehaven.com/article/15068/economists-opposing-fed-audit-are-on-fed-payroll Economists on Fed Payroll], MISH</ref><ref>[http://www.huffingtonpost.com/2009/09/07/priceless-how-the-federal_n_278805.html Priceless], Ryan Grim, Huffington Post</ref><ref>[http://www.marketoracle.co.uk/Article26581.html Ten Reasons The Banksters Got Away With It], Danny Schechter</ref><ref>[http://www.youtube.com/watch?v=FxtCn2GyqKc&feature=related Corruption in Academic Economics], Charles Ferguson</ref><ref>[http://www.marketoracle.co.uk/Article27805.html Currency Dead End Paradox], Jim Willie CB</ref> Those economists who "dare" to speak about such topics are simply not employed by the banks, by government-sponsored universities or by international financial institutions and are not published in mainstream economic publications and, therefore, their views are not widely disseminated to the general public who are generally taught by government-sponsored teachers and receive their news from the mainstream media.<ref>[http://www.huffingtonpost.com/2009/09/07/priceless-how-the-federal_n_278805.html Priceless], Ryan Grim, Huffington Post</ref><ref>[http://www.marketoracle.co.uk/Article26581.html Ten Reasons The Banksters Got Away With It], Danny Schechter</ref><ref>[http://www.youtube.com/watch?v=FxtCn2GyqKc&feature=related Corruption in Academic Economics], Charles Ferguson</ref><ref>[http://www.wsws.org/en/articles/2013/01/29/keen-j29.html UWS victimises Professor Steve Keen]</ref><ref>[http://www.zerohedge.com/news/2013-05-02/guest-post-nicholas-taleb-against-establishment-economists Establishment Economists]</ref>

== Typical criticisms ==

Founder of the so-called "New Austrian School", Professor Antal E. Fekete, has stated the following in relation to the current monetary system:<ref>[http://www.professorfekete.com/articles/AEFTheSilverSaga.pdf The Silver Saga]</ref>

{{quote|The world economy, sagging as it is under the weight of its debt tower and fast depreciating irredeemable currencies, is clearly on its way to self-destruction. The forcible elimination of, first, silver and then a hundred years later of gold, from the monetary system removed the only ultimate extinguishers of debt we have. In consequence, total debt can only grow, never contract. The process is hidden since the unpaid and unpayable debt is accumulating as sovereign debt of governments. The world is deluding itself that sovereign debt can increase indefinitely as governments can extend its maturity indefinitely. In 2008 we had the wake-up call that it cannot. Unless we stop the proliferation of debt, the world is facing prolonged deflation, depression, continuing capital destruction, bankruptcies and unprecedented unemployment. It is leading to a breakdown of law and order. It could spell the end of our civilization.}}

In August 2004, four years ''before'' the Global Financial Crisis of September 2008 and the ongoing financial crises in Europe and elsewhere, Austrian commentator Robert K. Landis stated the following:<ref>[http://www.goldensextant.com/SavingtheSystem.html Saving the System]</ref>

{{quote|No, the die is cast: we shall have the catastrophe. Our fiat monetary system got a reprieve in the 1980's, not a deliverance. All that has happened since, with the fantastic mispricing of credit the Greenspan Fed has engineered, and the massive global malinvestment this has engendered, is that the dimensions of the unraveling have become more dire.

Mises called this one too: "Certainly, the banks would be able to postpone the collapse; but nevertheless, as has been shown, the moment must eventually come when no further extension of the circulation of fiduciary media is possible. Then the catastrophe occurs, and its consequences are the worse and the reaction against the bull tendency of the market the stronger, the longer the period during which the rate of interest on loans has been below the natural rate of interest and the greater the extent to which roundabout processes of production that are not justified by the state of the capital market have been adopted."

With respect to the form the denouement will take, much has been written within the gold community on the subject of whether we face hyperinflation or deflationary depression as the prelude to monetary collapse. Both sides of the debate appear to accept the premise that whatever may transpire will bear a linear relationship to what now exists. The disagreement centers on the direction the line will go. But today's markets are fully linked by derivatives and technology, and they are patrolled by wolf packs of large, leveraged speculators not noted for their patient outlook. So it seems likely that the terminal monetary crisis will unfold on virtually an instantaneous and discontinuous basis, once the fog of statistical deceit and false market cues begins to lift and a clear trend either way becomes evident. We are not likely to enjoy the luxury of observing either a deflation or an inflation unfold in the fullness of time, but rather, just as Mises foretold, a final and total catastrophe of our fiat monetary system.}}

Financial commentator Jim Willie has written the following regarding the current fiat money system:<ref>[http://www.marketoracle.co.uk/Article39362.html Raging Gold Bull]</ref>

{{quote|The West cannot solve its problems, hardly properly described as a financial crisis anymore, under the current framework bound to the fiat paper currencies. The global monetary war is heating up notably. The heavy liquidity has caused unfixable distortions in every conceivable bond market niche. The new and better debt devices have been exposed for their shams. The leading central bankers lost their credibility long ago. The weakness is as broad as it is deep, a reliance upon paper wealth and paper structures and paper contracts, during a time of zero bound interest rates and unfettered hyper monetary inflation to cover the debts. Almost no foreign USTreasury Bond buyers exist anymore. The US has become Weimar Amerika, a fascist enclave.}}

On 5 March 1997, in a speech in the House of Lords in London England, the Earl of Cathiness made the following observations:<ref>[http://prosperityuk.com/2001/06/our-debt-based-money-system-will-break-us/ Our debt-based monetary system will break us], Earl of Cathiness, House of Lords, Wednesday, 5 March, 1997, Hansard, Vol. 578, No. 68, columns 1869-1871</ref><ref>See also the additional House of Lords speeches contained [http://earthlinggb.wordpress.com/2011/04/06/british-house-of-lords-stunning-speeches/ here]</ref>

{{quote|...it is also a good time to stand back, to reassess whether our economy is soundly based. I would contest that it is not, not for the reason to which the noble Lord, Lord Eatwell, alluded, which is that it is the Government’s fault, but our whole monetary system is utterly dishonest, as it is debt-based. “Dishonest” is a strong word, but a system which by its very actions causes the value of money to decrease is dishonest and has within it its own seeds of destruction. We did not vote for it. It grew upon us gradually but markedly since 1971 when the commodity-based system was abandoned.

Let us look at what has happened since then. The money supply in 1971 was just under £31 billion. At the end of the third quarter of last year, it was about £665 billion. In 25 years it has grown by a staggering 2,145 per cent. Where has the money come from? Interestingly, the Government have only minted a further £20 billion in that time. It is the banks, the building societies and our commercial lenders who have created the balance of £614 billion. If this rate of growth is projected over the next 25 years, the money supply in 2022 will be over £14,000 billion.

All that new money bears interest paid either by us as individuals, by companies or by the Government. Today the Government pay over £30 billion annually in interest charges — coincidentally about the same as the total money supply only 25 years ago. Governments since then have abdicated their responsibility for producing new money and controlling the money supply so that now they are marginalised. In 1971 government notes and coins accounted for 14 per cent of the money supply. Now it is only about 3.5 per cent. “So what?”, noble Lords might ask.

The problem is that it is commercial lending that has boosted the money supply, thus increasing debt and, as sure as night follows day, inflation follows growth in money supply of this sort...

Conventional wisdom tells us that in order to create new jobs and boost the economy, interest rates have to be reduced. That has happened. People are encouraged to borrow to invest and spend. That has happened. As the continuing flow of new money finds its way into the economy, inflation will follow and up will go interest charges again to reduce the level of borrowing. In order to pay the increasing levels of interest, borrowers will once more have to reduce expenditure in other areas of economic activity. The cycle will continue, but the next time, as before, we will all start deeper in debt and with a burden harder to carry. Personal debt has already increased by nearly 3,000 per cent since 1971. How much more can we take? I hope, for the sake of our economy, without which we cannot finance what we want to see — a good health service and a good social security system among other things — we will question this conventional wisdom.

We all want our businesses to succeed, but under the existing system the irony is that the better our banks, building societies and lending institutions do, the more debt is created. The noble Lord, Lord Kingsdown, said that there is little that can be done about debt. No, I do not believe that. There is a different way: it is an equity-based system and one in which those businesses can play a responsible role. The next government must grasp the nettle, accept their responsibility for controlling the money supply and change from our debt-based monetary system. My Lords, will they? If they do not, our monetary system will break us and the sorry legacy we are already leaving our children will be a disaster.}}

On 4 November 1999, Lord Sudeley stated in the House of Lords:

{{quote|The only way in particular to stop inflation is to stop banks from creating credit. The supply of money should be removed from banks and should be assumed by governments, who should issue it on a debt-free basis. Such a view is supported by five disparate quarters: the noble Lord, Lord Beswick, in the debate which he introduced to this House in 1985, Disraeli, the Vatican under Pope Pius XI in his Encyclical Quadragesimo Anno in 1931, the Tsars of Russia in the last century, who prevented the setting up of a privately owned central bank, and, above all, Abraham Lincoln, who said that governments should create, issue, and circulate all currency and credits needed to satisfy the spending power of governments and the buying power of consumers.

By adopting those principles, the taxpayer would be saved immense sums of interest. Lincoln’s greenbacks were generally popular, and their existence let the genie out of the bottle with the public becoming accustomed to government-issued, debt-free money. The year after Lincoln’s assassination, Congress set to work at the bidding of the European central banking interests to retire the greenbacks from circulation and to ensure the reinstitution of a privately owned central bank under the usurers’ control.

During the history of the United States, the money power has gone back and forth between Congress and some privately owned central bank. The American people fought off four privately owned central banks before succumbing to a fifth privately owned central bank, at that time essential, owing to the period of weakness during the Civil War.

The founding fathers of the United States knew the evils of a privately owned central bank. They had seen how the Bank of England ran up the British national debt to such an extent that Parliament was forced to place unfair taxes on the American colonies, leading to their loss following, the American Revolution.

I now conclude. Once the fundamental decision is taken to prevent sterling from being debt-based, the Commonwealth could act as the right monetary union to use sterling debt-free as a genuine alternative to the dollar and the euro.}}

Norm Franz states in his ''Money and Wealth in the New Millennium'':<ref>[http://www.amazon.com/Money-Wealth-Millennium-Norm-Franz/dp/0971086303 ''Money and Wealth in the New Millennium''], Norm Franz</ref>

{{quote|Gold is the money of kings, silver is the money of gentlemen, barter is the money of peasants – but debt is the money of slaves.}}

12th century Chinese scholar Hu Zhiyu stated:<ref>Ralph T. Foster, ''Fiat Paper Money, The History and Evolution of Our Currency'', page 19</ref>

{{quote|Paper money, the child, is dependent on precious metals, the mother. [Inconvertible paper notes are therefore] orphans who lost their mother in childbirth.}}

Robert H. Hemphill, credit manager of the Federal Reserve in Atlanta, stated in 1939:<ref>Preface to ''100% Money'', Irving Fisher. Note: This quote has not been traced to the primary source. See for example [http://www.webofdebt.com/excerpts/introduction.php Web of Debt] and [http://www.lewrockwell.com/north/north908.html Gary North's critique of the book and its sources]</ref>

{{quote|If all the bank loans were paid, no one would have a bank deposit and there would not be a dollar of coin or currency in circulation. This is a staggering thought. Someone has to borrow every dollar we have in circulation, cash or credit. If the banks create ample synthetic money we are prosperous; if not, we starve. When one gets a complete grasp of the picture the tragic absurdity of our hopeless position is almost incredible, but there it is. It (the banking problem) is the most important subject intelligent persons can investigate and reflect upon. It is so important that our present civilization may collapse unless it becomes widely understood and the defects remedied very soon.}}

British monetary reformer Michael Rowbotham states the following in his book, ''The Grip of Death'' (the title being derived from the literal origin of the word "mortgage"):<ref name="death">{{cite book |last= Rowbotham |first= Michael |title= The Grip of Death: A Study of Modern Money, Debt Slavery and Destructive Economics | year= 1998 |publisher= Jon Carpenter Publishing |isbn= 9781897766408 }}</ref>

{{quote|It is actually not in the least surprising that nations are chronically in debt, governments have inadequate resources, public services are under-funded and people are beset by mortgages and overdrafts. The reason for all this monetary scarcity and insolvency is that the financial system used by all national economies worldwide is actually founded upon debt. To be direct and precise, modern money is created in parallel with debt. The reason for the failure of economists to question patently invalid monetary data becomes clear - there is a total acceptance by them of the most extraordinary method for supplying money to the modern economy.

The creation and supply of money is now left almost entirely to banks and other lending institutions. Most people imagine that if they borrow from a bank, they are borrowing other people's money. In fact, when banks and building societies make any loan, they create new money. Money loaned by a bank is not a loan of pre-existent money; money loaned by a bank is additional money created. The stream of money generated by people, businesses and governments constantly borrowing from banks and other lending institutions is relied upon to supply the economy as a whole. Thus the supply of money depends upon people going into debt, and the level of debt within an economy is no more than a measure of the amount of money that has been created...

All around us, the gross failure of modern economics screams out to be addressed. The towering indifference of those shining offices scraping the sky above the menacing ghettos of Brooklyn; the speculative channelling of billions of pounds of volatile international finance, which can leave a country prosperous one week and plunged into decline the next; the ludicrous production of cheap goods of poor durability, so that jobs are 'protected', and we can recycle the materials and make the goods all over again; the ridiculous export drives by which every country simultaneously attacks the economies of every other nation, under the pretence that such global free trade improves the general wellbeing; the staggering waste of a throwaway, quick-growth, all-new spiral of constant economic change; the outrageous financial debt which Third World countries have actually paid many times over, but which, due to interest, is now larger than ever before - a debt which forces those impoverished nations to compete to supply goods already in surplus; the cynical manipulation of human emotions into buying fashion-obsessed trivia; the burgeoning transport demands of escalating economic growth and centralisation, with identical goods crisscrossing the globe, regardless of environmental cost; the fact that despite the incredible productive capacity of the modern economy, people are obliged to work harder, with ever greater efficiency, forever forced to adapt and retrain or face a life of indignity and misery as one of the unemployed.

Both those in work and out must watch, as the world they know and understand changes almost in front of their eyes like some nightmarish Kafka-esque novel. This is the era of accelerating economic change. The benefits are highly dubious, and no-one even pretends that the economy is responding to what people actually want. The only justification offered for the changes is that this is 'the age of progress', and 'you can't stop progress', even if you are human and the progress you are discussing is supposed to be about people and the lives they might lead in the future. The world of economics has got mankind by the throat and everyone knows it, and no-one has a clue where we are going or why we are going there.

But is this surprising? If a monetary system is invalid or flawed, then the entire economy is based on the mathematics of error, and must be riddled with the effects. If the financial system upon which our economies are built is defective, and yet monetary considerations dominate our economic decisions, should we be surprised if the results are less than satisfactory?

The major role played by bank credit, which forms over 95% of the money stock in most developed nations, suggests that it cannot but be implicated in these trends. This is further suggested by the way that banking has literally become the focal point of modern economic management, through manipulating interest rates. The stargazers of Whitehall and the Federal Reserve hold their councils, trying to tread the non-existent tightrope between growth and recession by debating quarter percentage-points of interest rates. Alan Greenspan, the Chairman of the Federal Reserve, engagingly describes his task in controlling the American economy through adjusting interest rates as a matter of 'taking the champagne away once the party has started'. Businessmen around the world hold their breath, measuring his every word, wondering what he will decide. There could be no greater indictment of contemporary financial economics than this; that a fluctuating financial digit on a single computer system in a single street in a single country should have the ability to dominate the economies of an entire planet...

The past thirty years are almost unique by comparison with the previous three centuries in the lack of attention that has been directed at debt and the financial system. Throughout the eighteenth century, there were repeated calls for reform. During the nineteenth century, excessive banking was held by many to be directly responsible for the waves of appalling poverty that swept Europe and America during a period of increasing industrialisation and agricultural development. In this century, during the depression of the 1930s, the financial system effectively seized up and brought virtual collapse to the economies of the world in an age which was, perhaps for the first time, obviously wealthy, and in which technology offered people real freedom as well as material prosperity. One observer judged that over 2,000 schemes for monetary reform were put forward at that time - all with a common theme in their outright rejection of the debt-based financial system as it then operated. The same system continues to this day, modified in small details, but unchanged in principle; and the recent financial crisis in Asia shows the potential for collapse still exists.

However the issue of economic volatility through booms, slumps, crises, and collapses has never been the sole point of criticism. It is the long-term trends that a debt-based financial system fosters which are most destructive. The most obvious of these is declining personal solvency. Mortgages support over 60% (£420 billion) of the money stock in the UK and over 70% ($4.2 trillion) in the US. Housing-debt statistics for the UK and the US show that there has been a dramatic decline in true home ownership as mortgages become higher and ever more widespread. There can be little question that relying upon housing debt to supply money to an economy lacks economic and political justification. However, taken in conjunction with the marked rise in commercial debt, mortgages have a knock-on effect. In an economy where the price of goods is elevated by commercial debt and consumer incomes are deeply eroded by mortgage debt, there is a persistent and subtle advantage given to low-quality, mass-produced goods, and growth is fostered in this direction. The persistent decline in product durability and the growth-culture of a rapacious consumer society can be directly traced to the debt-based financial system.

The financial system has also generated a serious distortion of agriculture. Excessive farming debt has driven out the most efficient producers - small/medium sized farms. Meanwhile, the relentless pursuit of farming and processing methods oriented towards a low-price market now involves the production of foodstuffs of poor nutritional value, inferior to that which the land can provide and inferior to that which consumers actually desire.

The nature of growth within a debt economy affects not only the quality of output, but distribution and marketing. Intense competition for sales within a debt-based economy results in the use of transport as a competitive strategy by businesses. This has led to a progressive breakdown of local and regional supply networks, and marketing over ever-greater distances, leading to escalating commercial traffic demands.

At the international level, trade is deeply affected by the debt-based financial system. The aggressive pursuit of maximum export revenues, rather than seeking a simple balance of trade, is entirely due to the fact that even the wealthiest nations operate from a position of gross insolvency. International trade has degenerated into a competition between nations to alleviate their indebtedness, rather than a process involving a mutually beneficial exchange of goods and services.

Endemic Third World debt is also directly attributable to the reliance upon debt and banking to supply money. The theoretical model of borrowing from the World Bank/IMF, investing in development and repaying loans from export revenues, is one of the great failures of contemporary economics. The persistent inability on the part of debtor nations to repay these loans suggests strongly that the nature of the indebtedness suffered by the Third World has absolutely no actual legitimacy or validity...

The more one explores the broad impact of debt, the more apparent it becomes that bank-credit constitutes a dysfunctional form of money. An economy based almost entirely upon bank-credit and debt experiences an intense drive for growth, regardless of need or demand. Bank credit engenders financial dependence, injects instability and fosters growth-distortions, both within an economy and throughout the international arena.

Reform of the debt-based financial system is clearly not a minor issue. It is not a matter of fiddling around with taxes, incomes and allowances to make things apparently more equal, more efficient, or perhaps more straightforward. Changing the debt-based financial system involves gradually altering the very foundations upon which national and international economics is based. Monetary reform is concerned with attempting to determine a new principle for the supply of money to an economy - the purpose being to create a supportive financial environment in which more constructive economic trends are allowed to emerge, and in which more benign systems of overall economic management become possible. In view of the rapacious onslaught on the environment, the waste of natural resources and the social and political friction caused by de-regulated commerce and capital flows, this is at once a promising, but a sobering prospect.}}

Dr Chris Leithner states in his book ''The Evil Princes of Martin Place'':<ref>[http://economics.org.au/2011/04/the-banking-bubble-blow-by-blow/ The Evil Princes of Martin Place]</ref>

{{quote|The inflation that necessarily results from fractional reserve banking is a “tax” by which the early recipients of counterfeit money expropriate late recipients’ wealth. The tax is particularly insidious because it’s so well hidden. Few people — apparently including banksters and mainstream economists! — understand it (or, if they understand it, certainly don’t draw attention to it); and still less do they discuss its ethical and distributional implications. Obviously, it’s in insiders’ interest to distract outsiders’ attention from the source of the counterfeiting. It’s also in their interest to reverse the order of causality with respect to the cause and consequences of inflation, and thereby further to bamboozle the public. Accordingly, governments and mainstream economists don’t attribute the consequence (rising prices) to its single cause (inflation); instead, they brazenly and diametrically incorrectly insist that rising prices cause inflation! (p. 143)...

Gosplan, the Soviet Union’s central planning agency, set targets for the production of steel, cement and myriad other goods and services; Western central banks set targets for the Overnight Cash Rate and the Consumer Price Index. The chaotic consequences of central plans, Soviet and Western, necessarily reverberate throughout the economy … It’s quite comical: people who claim they “believe in the free market” blindly and unthinkingly affirm central banking and its relentless interventions into the market. Elementary logic completely escapes them: if you reject central planning in general, then you must also reject specific aspects like the central planning of money. If you abhor attempted price-fixing, then you must abhor the attempt to fix the Overnight Cash Rate. (pp. 254-55)...

[I]t is highly improbable that the combination of a pure gold standard and a 100% reserve for deposits has ever resulted in a prolonged rise of prices. The historical record is telling: in no year from 1492 to the present has the total supply of gold increased by more than 5%. (p. 552)}}

Ron Paul stated in his book ''End the Fed'':<ref name="Paul_End">Ron Paul. [http://mises.org/daily/3687 ''End the Fed''], ''Mises Institute'', September 03, 2009. Chapter 2 of the book ''End the Fed''. Referenced 2011-03-16.</ref>

{{quote|American presidents actually worked to implement and defend the gold standard, which put a brake on the ability of the largest banks to expand credit without limit. The gold standard worked like a regulator in this way. Ultimately, banks had to function like every other business. They could expand and make risky loans up to a point, but when faced with bankruptcy, they had nowhere they could turn. They would have to contract loans and deal with extreme financial pressures. Risk bearing is a wonderful mechanism for regulating human decision making. This created a culture of lending discipline.

In the jargon of the day, the system lacked "elasticity." That's another way of saying that banks couldn't expand money and credit as much as they wanted. They couldn't inflate without limit and count on a centralized institution to bail them out...

The banking industry has always had trouble with the idea of a free market that provides opportunities for both profits and losses. The first part, the industry likes. The second part is another issue. That is the reason for the constant drive in American history towards the centralization of money and banking, a trend that not only benefits the largest banks with the most to lose from a sound money system, but also the government, which is able to use an elastic system as an alternative form of revenue support. The coalition of government and big bankers provides the essential backbone of support for the centralization of money and credit...

Consider the Soviet case: to my knowledge, no business ever went under with the Soviet system but society in general grew ever poorer. Think of that Soviet system applied to the banking industry and you have the Fed.}}

He also wrote the following in March 2013:<ref>[http://lewrockwell.com/paul/paul854.html The Great Cyprus Bank Robbery]</ref>

<blockquote>Remember that under a fractional reserve banking system only a small percentage of deposits is kept on hand for dispersal to depositors. The rest of the money is loaned out. Not only are many of the loans made by these banks going bad, but the reserve requirement in Euro-system countries is only one percent! If just one euro out of every hundred is withdrawn from banks, the bank reserves would be completely exhausted and the whole system would collapse. Is it any wonder, then, that the EU fears a major bank run and has shipped billions of euros to Cyprus?

The elites in the EU and IMF failed to learn their lesson from the popular backlash to these tax proposals, and have openly talked about using Cyprus as a template for future bank bailouts. This raises the prospect of raids on bank accounts, pension funds, and any investments the government can get its hands on. In other words, no one's money is safe in any financial institution in Europe. Bank runs are now a certainty in future crises, as the people realize that they do not really own the money in their accounts. How long before bureaucrat and banker try that here?

Unfortunately, all of this is the predictable result of a fiat paper money system combined with fractional reserve banking. When governments and banks collude to monopolize the monetary system so that they can create money out of thin air, the result is a business cycle that wreaks havoc on the economy. Pyramiding more and more loans on top of a tiny base of money will create an economic house of cards just waiting to collapse. The situation in Cyprus should be both a lesson and a warning to the United States. We need to end the Federal Reserve, stay away from propping up the euro, and return to a sound monetary system.</blockquote>

In the foreward to ''Fiat Money Inflation in France'', Mr John McKay wrote the following:<ref>[http://mises.org/books/inflationinfrance.pdf ''Fiat Money Inflation in France''], Andrew Dickson White, 1912</ref>

{{quote|The story of "Fiat Money Inflation in France" is one of great interest to legislators, to economic students, and to all business and thinking men. It records the most gigantic attempt ever made in the history of the world by a government to create an inconvertible paper currency, and to maintain its circulation at various levels of value. It also records what is perhaps the greatest of all governmental efforts—with the possible exception of Diocletian's—to enact and enforce a legal limit of commodity prices. Every fetter that could hinder the will or thwart the wisdom of democracy had been shattered, and in consequence every device and expedient that untrammelled power and unrepressed optimism could conceive were brought to bear.

But the attempts failed. They left behind them a legacy of moral and material desolation and woe, from which one of the most intellectual and spirited races of Europe has suffered for a century and a quarter, and will continue to suffer until the end of time. There are limitations to the powers of governments and of peoples that inhere in the constitution of things, and that neither despotisms nor democracies can overcome.

Legislatures are as powerless to abrogate moral and economic laws as they are to abrogate physical laws. They cannot convert wrong into right nor divorce effect from cause, either by parliamentary majorities, or by unity of supporting public opinion. The penalties of such legislative folly will always be exacted by inexorable time. While these propositions may be regarded as mere commonplaces, and while they are acknowledged in a general way, they are in effect denied by many of the legislative experiments and the tendencies of public opinion of the present day. The story, therefore, of the colossal folly of France in the closing part of the eighteenth century and its terrible fruits, is full of instruction for all men who think upon the problems of our own time.}}

C.J. Maloney wrote of the desperation of Henry VIII of England to counterfeit gold by engaging charlatan-alchemists:<ref>[http://www.lewrockwell.com/maloney/maloney28.1.html The Desperation of King Henry VIII], C.J. Maloney</ref>

{{quote|Despite his formidable education and great historic reputation, the disastrous interventions into the economy, the lifelong dishonesty with the currency in his care and, most of all, his laughable attempts to bring a sorcerer into his court to conjure gold, mark the great King Henry VIII as a fool. Yet there is no reason, be warned, for anyone to feel superior to the King; one only needs to pick up a newspaper to see that though alchemy may be a dead science, it has merely taken up new forms.

This has always been and always will be, for its immortality is powered by economic man’s most dangerous, fondest wish, the one that will drive us to endless imbecilities and repeated destruction – the ardent desire to believe that you can get something for nothing. His adherence to that belief made King Henry VIII a man of his times – and ours.}}

In his treatise, ''The Ethics of Money Production'', which was published by the Mises Institute in October 2008, Jörg Guido Hülsmann presents (at pages 238-239) the following description of the perverse rise of fiat money and fractional reserve banking:

{{quote|There is no tenable economic, legal, moral, or spiritual rationale that could be adduced in justification of paper money and fractional-reserve banking. The prevailing ways of money production, relying as they do on a panoply of legal privileges, are alien elements in the capitalist [i.e., true free market] economy. They provide illicit incomes, encourage irresponsibility and dependence, stimulate the artificial centralization of political and economic decision-making, and constantly create fundamental disequilibria that threaten the life and welfare of millions of people. In short, paper money and fractional-reserve banking go a long way toward accounting for the excesses for which the capitalist economy is widely chided.

We have argued that these monetary institutions have not come into existence out of any economic necessity. They have been created because they allow an alliance of politicians and bankers to enrich themselves at the expense of all other strata of society. This alliance emerged rather spontaneously in the seventeenth century; it developed in multifarious ways up to the present day, and in the course of its development it created the current monetary institutions.

…The driving force that propelled the development of central banks and paper money was the reckless determination of governments, both aristocratic and democratic, to increase their revenue, if necessary in violation of good faith and of all established rules of commerce.}}

The father of the Deutsche Mark, Wilhelm Röpke (1899-1966) stated:<ref>[http://www.professorfekete.com/articles/AEFAmericanBasesGermanyGoldBasis.pdf The Gold Basis], Antal E Fekete</ref>

{{quote|It is not the gold standard that failed, but those in whose care it was entrusted.}}

Many [[monetary reform]]ers claim that a fiat money/fractional-reserve based banking system is inherently destructive and inevitably generates [[inflation|debasement of the currency]], extreme inequality, the destruction of the middle class<ref name="Paul_End" /> and [[Austrian Business Cycle Theory|wrenching business crises]].<ref>[http://www.marketoracle.co.uk/Article25212.html The Faults of FRB], Thorsten Polleit</ref><ref name="Paul_End" /><ref>[http://mises.org/store/Money-Bank-Credit-and-Economic-Cycles-P290C0.aspx Money, Bank Credit and Economic Cycles], Jesus Huerta de Soto, Mises Institute ISBN: 978-1-933550-39-8</ref><ref>[http://www.mises.org/Books/mysteryofbanking.pdf Murray Rothbard, ''The Mystery of Banking'']</ref><ref name="books.google.com">{{cite book |last= Brown |first= Ellen H. |title= Web of Debt |url= http://books.google.com/books?id=ILMGrEC524UC |accessdate= 2007-12-15 |year= 2007 |publisher= Engdahl Publishing|isbn= 0979560802 }}</ref><ref name="death"/><ref name="monetary.org">[http://www.monetary.org/lostscienceofmoney.html Stephen A. Zarlenga, ''The Lost Science of Money'' AMI (2002)]</ref><ref>[http://mises.org/story/3108 Sound Money], Lew Rockwell</ref><ref>[http://mises.org/story/1971 Our Money Madness], Lew Rockwell</ref><ref>[http://mises.org/rothbard/genuine.asp The Case for a Gold Dollar], Murray Rothbard</ref><ref name="twilight"/> Vladimir Z. Nuri has analyzed fractional reserve banking and considers it a form of economic parasitism.<ref>[http://econpapers.repec.org/paper/wpawuwpma/0203005.htm Fractional Reserve Banking as Economic Parasitism]</ref> Ellen Hodgson Brown has compared fractional reserve banking and the charging of compound interest on created money with cancer.<ref>[http://www.marketoracle.co.uk/Article39053.html Why Bankers Rule the World], Ellen Hodgson Brown</ref>

These views are not accepted by mainstream government-supported economists. For example David Andolfatto, Vice President in the Research Division of the Federal Reserve Bank of St. Louis, has openly called Dr. Ron Paul a "pinhead" for holding such views.<ref>[http://www.lewrockwell.com/wenzel/wenzel87.1.html Senior Fed Economist Calls Ron Paul a Pinhead], LRC</ref> He later tried unsuccessfully to delete or retract his statements and expressed his regret over making the comments.<ref>[http://www.lewrockwell.com/wenzel/wenzel92.1.html Fed Economist in Retreat], Robert Wenzel</ref>

Critics of fractional reserve banking frequently argue that since money creation requires ''loans'' from the banking system, people are required to go further into debt in order for any new money to be created. They theorize that this eventually causes [[Austrian Business Cycle Theory|credit cycle]]s (or [[Austrian Business Cycle Theory|business cycles]]) and debases the [[means of exchange]].<ref>[http://www.marketoracle.co.uk/Article25212.html The Faults of FRB], Thorsten Polleit</ref> They also argue that if debts were ever paid back, there would be no money and the economy would collapse in a debt-deflation trap.<ref>[http://www.youtube.com/watch?v=jqvKjsIxT_8 Money As Debt]</ref> They therefore argue the system is ''inherently unstable'', requiring constantly increasing injections of debt just to avoid deflationary collapse.<ref>[http://www.youtube.com/watch?v=jqvKjsIxT_8 Money As Debt]</ref> They claim this is ultimately unsustainable.<ref>[http://www.youtube.com/watch?v=jqvKjsIxT_8 Money As Debt]</ref><ref>[http://www.youtube.com/watch?v=HZAzBDDnhwg Rich Dad Advisors Discuss Food Storage]</ref>

Many critics find it problematic that banks "create money out of nothing" and consider this fundamentally immoral, akin to [[counterfeiting]]<ref>[http://www.youtube.com/watch?v=QIBFvikcl7g Stacy Herbert and Max Keiser: Flaming Banks] Max Keiser Quote: "Banks counterfeit money. Bernanke, Geithner... anyone in the banking business is just a... just an out of control, rogue, counterfeiting, naked short selling ''weasel''."</ref> and/or [[embezzlement]].<ref>[http://www.dailypaul.com/node/119914 Ron Paul video - fractional reserve banking is fraudulent]</ref><ref name="Paul_End" /><ref>[http://www.marketoracle.co.uk/Article25212.html The Faults of FRB], Thorsten Polleit</ref>

Some also link the alleged negative effects of fractional reserve banking with central banking<ref>[http://www.zerohedge.com/article/guest-post-qe-end-america-we-know-it QE Is The End Of America], ZeroHedge</ref> and a government-enforced "paper" or [[fiat currency]],<ref>[http://www.marketoracle.co.uk/Article27768.html The Federal Reserve Note Is Dead], Jeff Berwick</ref> which they claim allows the practice of fractional reserve banking to continue without a "natural" limitation on the growth of the [[money supply]], thereby causing inherently unsustainable "[[bubble (economics)|bubbles]]" in asset and capital markets, which are vulnerable to Ponzi-like speculation by highly leveraged [[hedge funds]] and other bank agents.<ref name="Paul_End" /><ref>[http://www.debtdeflation.com/blogs/2009/12/23/mish-on-the-fictional-reserve-system/ MISH on the Fictional Reserve System], Steve Keen</ref><ref>[http://mises.org/store/Money-Bank-Credit-and-Economic-Cycles-P290C0.aspx Money, Bank Credit and Economic Cycles], Jesus Huerta de Soto, Mises Institute ISBN: 978-1-933550-39-8</ref><ref name="books.google.com">{{cite book |last= Brown |first= Ellen H. |title= Web of Debt |url= http://books.google.com/books?id=ILMGrEC524UC |accessdate= 2007-12-15 |year= 2007 |publisher= Third Millennium Press |location= Baton Rouge, Louisiana |isbn= 0979560802 }}</ref><ref name="death"/><ref name="monetary.org">[http://www.monetary.org/lostscienceofmoney.html Stephen A. Zarlenga, ''The Lost Science of Money'' AMI (2002)]</ref><ref>[http://mises.org/story/3108 Sound Money], Lew Rockwell</ref><ref>[http://mises.org/story/1971 Our Money Madness], Lew Rockwell</ref><ref>[http://mises.org/rothbard/genuine.asp The Case for a Gold Dollar], Murray Rothbard</ref><ref name="twilight"/><ref>[http://www.marketoracle.co.uk/Article25212.html The Faults of FRB], Thorsten Polleit</ref>

Reformist economists such as [[Murray Rothbard]] support a "full reserve" banking system and criticize [[fractional reserve banking]] as inherently fraudulent.<ref>[http://mises.org/daily/5185/The-Need-for-100-Reserves The Need for 100% Reserves], Frank D. Graham</ref> [[Murray Rothbard]] held this view very strongly throughout his life.<ref name="Paul_End" /><ref>[http://www.marketoracle.co.uk/Article25212.html The Faults of FRB], Thorsten Polleit</ref> Other reformist economists are more tolerant of fractional-reserve banking and support [[free banking]] instead of full reserve banking.<ref>[http://books.google.com/books?id=DFv6OzeBWpQC&pg=PP3&dq=steven+horwitz++banking&sig=VZasp_8pGVvpQsFKMI3W9yp4AlM#PPA231,M1 Microfoundations and Macroeconomics: An Austrian Perspective], Steven Horwitz, pp. 223-232.</ref>

==Basic debate==

The economic, environmental and social effects arising from money creation through fractional-reserve banking have been subject to much heated political debate for well over two centuries.<ref name="The Forgotten War"/><ref name="books.google.com"/><ref name="death"/><ref name="twilight"/><ref>[http://www.silverbearcafe.com/private/fracbank.html Antal E. Fekete, Fractional Reserve Banking Revisited]</ref><ref>[http://news.goldseek.com/GoldSeek/1297199137.php China Inflation and Gold], Darryl Robert Schoon</ref><ref>[http://www.zerohedge.com/article/guest-post-good-bad-and-ugly-part-3 The Good, the Bad and the Ugly], James Quinn</ref><ref>[http://www.marketoracle.co.uk/Article29255.html The Collapse of Paper Money], Darryl Robert Schoon</ref><ref>[http://www.goldismoney2.com/archive/index.php/t-524.html?s=d418ff253326772a09e1a8d992da7753 Venetian Bankers and the Dark Ages]</ref>

Many Austrian economists and monetary reformers focus on the combined use of [[fiat currency]], [[fractional-reserve banking]] and [[central banking]] as a negative feature of modern monetary systems.<ref>[http://www.youtube.com/watch?v=G1l7DY8kdz0 The Fed Unspun]</ref><ref>[http://mises.org/media/4014 The Economics of Legal Tender Laws], [[Jorg Guido Hulsmann]]</ref><ref>[http://mises.org/store/Meltdown-P557.aspx ''Meltdown''], Tom Woods, Regnery Press ISBN: 9781596985872</ref> These commentators use the term "debt-based monetary system" to refer to an economic system where [[money]] is created primarily through fractional-reserve banking techniques, using the banking system.<ref>[http://mises.org/daily/4569 What Does Debt-Based Money Imply for Interest Payments?], Robert Murphy</ref><ref>[http://mises.org/daily/4631 Is Our Money Based On Debt?], Robert Murphy</ref><ref name="speech"/> This form of money is called "debt-based" because as a ''condition of its creation'' someone must go into debt in order for the money to be created and it must be paid back plus interest at some time in the future.

To some commentators, this implies that as the [[money supply]] and the economy grows, the general populace becomes increasingly indebted at the same time due to the fact that debt grows in parallel with money supply growth, and increasing interest payments (from either taxpayers or indebted consumers) are needed to pay bondholders as the money supply grows.<ref>[http://www.marketoracle.co.uk/Article28533.html The Global Debt Crisis], Ellen Hodgson Brown</ref><ref name="death"/><ref name="twilight">[http://www.marketoracle.co.uk/Article4489.html Antal E. Fekete, The Twilight of Irredeemable Debt]</ref><ref name="The Forgotten War">[http://news.goldseek.com/GoldSeek/1192819378.php America's Forgotten War Against the Central Banks], Mike Hewitt</ref>

One argument posits that since debt and the interest on the debt can only be paid in the same form of money, the total debt (principal plus interest) can never be paid in a debt-based monetary system unless more money is created through the same process.<ref>[http://www.marketoracle.co.uk/Article28533.html The Global Debt Crisis], Ellen Hodgson Brown</ref><ref>[http://www.marketoracle.co.uk/Article38581.html The Trillion Dollar Coin: What You Really Need To Know], Rudy Avizuis</ref> For example: if 100 credits are created and loaned into the economy at 10% per year, at the end of the year 110 credits will be needed to pay the loan and extinguish the debt. However, since the additional 10 credits does not yet exist, it too must be borrowed. To some, this implies that the money supply must grow exponentially at the same rate as economic growth and compounding debt in order for the monetary system to remain solvent, as economic activity would be stifled with a static volume of money when interest became due, because in a static-money world no new money could be found to be taken out of circulation to allow debtors to pay outstanding interest to creditors.<ref name="death"/><ref name="twilight"/><ref>[http://globaleconomicanalysis.blogspot.com/2011/01/steve-keen-responds-to-world-economic.html Exponential Credit], MISH,</ref><ref>[http://blog.mises.org/17737/chancellor-not-enough-gold/ Not Enough Gold], Robert Blumen</ref><ref>[http://mises.org/daily/6391/Why-the-Greenbackers-Are-Wrong Why Greenbackers Are Wrong], Thomas Woods</ref>

Others argue that there is in fact no mathematical necessity for the stock of money in a debt-based system to grow, as the "turnover" or "flow" or "velocity" of money can increase to allow for compounding interest payments.<ref>[http://mises.org/daily/4569 What Does Debt-Based Money Imply for Interest Payments?], Robert Murphy</ref><ref>[http://www.debtdeflation.com/blogs/2010/10/08/ami-talks-in-flv-format/ AMI Conference 2010], Steve Keen</ref><ref>[http://www.debtdeflation.com/blogs/2010/11/05/solving-the-paradox-of-monetary-profits-2/ Solving the Paradox of Monetary Profits], Steve Keen</ref><ref>[http://www.zerohedge.com/news/2013-02-11/occams-gold-vs-rube-goldbergs-fiat Occam's Gold]</ref><ref>[http://mises.org/daily/6391/Why-the-Greenbackers-Are-Wrong Why Greenbackers Are Wrong], Thomas Woods</ref> However this does imply that population growth would need to be positive to encourage increased spending rates or some individual consumers would have to increase their rate of spending (and decrease their savings) to expand GDP sufficiently to allow the fixed stock of money to turnover sufficiently to pay for the interest compounding on top of the debt.<ref>[http://globaleconomicanalysis.blogspot.com/2011/01/steve-keen-credit-impulse.html The Credit Impulse], Steve Keen with commentary from MISH</ref><ref>[http://mises.org/daily/4569 What Does Debt-Based Money Imply for Interest Payments?], Robert Murphy</ref><ref>[http://www.debtdeflation.com/blogs/2010/10/08/ami-talks-in-flv-format/ AMI Conference 2010], Steve Keen</ref><ref>[http://www.debtdeflation.com/blogs/2010/11/05/solving-the-paradox-of-monetary-profits-2/ Solving the Paradox of Monetary Profits], Steve Keen</ref> This may mean that Ponzi-like dynamics bubble up in "pockets" of the economy with interest payments being allowed in a fixed money economy, but these debt-fuelled bubbles of higher spending or speculation would pop and die out relatively quickly as there would be no central bank to keep the bubbles alive with further money creation.<ref>[http://mises.org/daily/4569 What Does Debt-Based Money Imply for Interest Payments?], Robert Murphy</ref><ref>[http://globaleconomicanalysis.blogspot.com/2011/01/steve-keen-credit-impulse.html The Credit Impulse], Steve Keen with commentary from MISH</ref><ref>[http://www.zerohedge.com/news/2013-02-11/occams-gold-vs-rube-goldbergs-fiat Occam's Gold]</ref>

Gold, silver and other [[precious metals]] have in the past been used as money.<ref>[http://www.zerohedge.com/news/2013-02-11/occams-gold-vs-rube-goldbergs-fiat Occam's Gold]</ref> Because of the difficulty in increasing the supply of precious metals quickly, some [[monetary reform]]ers believe a return to the [[gold standard]], or a similar system of "hard" or "real" asset-backed currency, is the only way to stabilize the growth of the money supply. These monetary reformers often refer to the gold standard and [[silver standard]] as "sound money" or "honest money".<ref>[http://mises.org/daily/4860 Money: Sound and Unsound], Mark Thornton commentary on Joseph Salerno's book</ref><ref>[http://mises.org/daily/6391/Why-the-Greenbackers-Are-Wrong Why Greenbackers Are Wrong], Thomas Woods</ref>

==Main criticisms==

In a 2003 statement to the U.S. House of Representatives, Ron Paul stated "if unchecked, the economic and political chaos that comes from currency destruction inevitably leads to tyranny".<ref name="house.gov">[http://www.house.gov/paul/congrec/congrec2003/cr090503.htm Paper Ron Paul, Paper Money and Tyranny, Speech in U.S. House of Representative, September 5, 2003]</ref>

Some economic thinkers (primarily members of the [[Austrian School]]) and political commentators believe that a debt-based monetary system amounts to a subtle form of monetary "[[fraud]]" in that it creates money "costlessly" through the use of [[fractional-reserve banking]] techniques.<ref>[http://www.mises.org/rothbard/moneyback.asp Taking Money Back, by Murray Rothbard]</ref>

Michael Rowbotham is an active proponent of [[monetary reform]], and argues that this system of [[money supply]] is perverse and inherently monopolistic and "anti-democratic", as it creates an inflationary exponential growth imperative in the economy which leads to over-centralization and environmentally damaging and unstable over-consumption. Critics such as Rowbotham argue that the indebted are forced to induce new consumers to spend their way into debt so existing loans can be repaid with new debt-created money. Failure to achieve this goal results in [[foreclosure]] for those businesses and [[insolvency]] in the banking system that leads to economic collapse due to the sudden contraction of the money supply.<ref name="death"/><ref name="Ponzi Nation">[http://www.iimagazine.com/article.aspx?articleID=1234345 Ponzi Nation]</ref> This failure is inevitable due to the fact that, eventually, debt-saturated businesses and governments will no longer be able to force individuals into further debt due to the fact that they are already debt-saturated themselves. Once this point is reached, economic collapse is inevitable without wholesale debt repudiation.

Mark Anielski as well as some political thinkers such as Rowbotham and some economists (such as Hyman Minsky, Steve Keen and Mike Shedlock) argue that this system of money supply has characteristics similar to a [[pyramid scheme]], where the newly indebted are compelled to induce others into debt to pay off their own debts.<ref>[http://globaleconomicanalysis.blogspot.com/2011/01/steve-keen-credit-impulse.html The Credit Impulse], Steve Keen with commentary from MISH</ref><ref>[http://www.lin.ca/resource/html/arpa02/PC1-FertileObfuscation.pdf ''Fertile Obfuscation: Making Money Whilst Eroding Living Capital''], 34th Annual Conference of the Canadian Economics Association, Mark Anielski</ref> It is therefore argued by a number of monetary reformers that fractional-reserve banking and the associated exponential growth of money in the economy "forces" the economy towards indebted consumerism.<ref name="books.google.com"/>

Rowbotham argues that a major negative side-effect of the debt-based monetary system is its effect on agriculture, claiming that residential development produces by far the greatest continuous injection of debt money into modern debt-based economies because banks secure loans primarily with developed property and are therefore willing to issue more debt-money against property development than any other asset class. Therefore, significant super-normal profits can be generated by re-zoning agricultural land and replacing it with low-density [[House|housing]].<ref name="death"/>
If this is correct, this trend will lead to the destruction of fertile arable land, as farmers cannot compete to retain fertile arable land from property developers at the periphery of major population centers, and as this land is then progressively re-zoned for speculative new residential development. Rowbotham predicts that the global supply of fertile arable land will systematically and catastrophically decline as perverse monetary incentives inherent in the current debt-based system favor short-term speculative land development over long-term food security, leading to a broad decline in the quality and nutritional value of agricultural produce and, eventually, a dramatic increase in the prices of many "soft" commodities - which could then lead to actual food shortages for poorer segments of the world population.<ref>[http://www.marketoracle.co.uk/Article27874.html Horrific Global Food Crisis is Looming], Michael Snyder</ref><ref>[http://www.lewrockwell.com/blog/lewrw/archives/85588.html Inflation and Bacteria], Michael Rozeff</ref><ref>[http://www.lewrockwell.com/blog/lewrw/archives/76920.html The Corporate State and the Tapeworm Economy], Catherine Austin Fitts</ref><ref name="death"/><ref>[http://www.wsws.org/articles/2007/dec2007/food-d22.shtml Naomi Spencer, World Socialist Website, "Severe food shortages, price spikes threaten world population", 22 December 2007]</ref><ref>[http://www.preparednesspro.com/blog/food-shortage-series-part-1/ Food Shortage Series],Kellene Bishop</ref> This has been referred to as the problem of "Peak Everything".<ref>[http://globaleconomicanalysis.blogspot.com/2011/03/oil-prices-are-double-edged-sword-peak.html Peak Everything?], MISH</ref><ref>[http://www.marketoracle.co.uk/Article28218.html "Peak Everything"], Jeremy Grantham</ref>

If for any reason the monetary system broke down, urban populations (nominally "rich" but poor in terms of direct access to food supply) could find basic foodstuffs either rationed or contaminated with lower quality products - or even unavailable at any price, ultimately resulting in food security becoming a major public policy issue - particularly if combined with oil supply shortages or an oil price spike,<ref>[http://www.marketoracle.co.uk/Article27874.html Horrific Global Food Crisis is Looming], Michael Snyder</ref><ref>[http://jsmineset.com/2011/02/24/in-the-news-today-791/ Collapse]</ref> as major population centers worldwide are almost entirely reliant on mass transportation of food from distant (or even foreign) locations to survive day-to-day.<ref>[http://www.marketoracle.co.uk/Article27874.html Horrific Global Food Crisis is Looming], Michael Snyder</ref><ref name="death"/><ref>[http://www.preparednesspro.com/blog/food-shortage-series-part-1/ Food Shortage Series],Kellene Bishop</ref><ref>[http://www.wsws.org/articles/2007/dec2007/food-d22.shtml Severe food shortages, price spikes threaten world population]</ref><ref>[http://www.nytimes.com/2010/12/18/business/global/18yuan.html?hpw Inflation in China]</ref><ref>[http://www.lewrockwell.com/blog/lewrw/archives/76920.html The Corporate State and the Tapeworm Economy], Catherine Austin Fitts</ref><ref>[http://jsmineset.com/2011/02/24/in-the-news-today-791/ Collapse]</ref><ref>[http://www.rickackerman.com/2011/04/bee-die-off-threatens-global-food-calamity/ Bee Die Off]</ref><ref>[http://globaleconomicanalysis.blogspot.com/2011/03/oil-prices-are-double-edged-sword-peak.html Peak Everything?], MISH</ref><ref>[http://lewrockwell.com/bonner/bonner602.html We're all going to die]</ref> In addition, fresh water (an essential commodity that is subsidised in its production by state-controlled entities in virtually every country around the world) appears to be rapidly diminishing through pollution and over-use, further threatening the global food supply in coming decades, resulting in what some commentators are describing as a global water crisis of "horrific" proportions.<ref>[http://lewrockwell.com/rep2/water-crisis-coming.html 25 Signs That a Horrific Global Water Crisis Is Coming], Economic Collapse Blog</ref><ref>[http://www.zerohedge.com/news/2013-03-06/guest-post-30-facts-coming-water-crisis-will-change-everything 30 Facts]</ref> Yemeni is at the cutting edge of these issues, having a simultaneous and inter-related water and drug crisis caused by economic stagnation, unemployment and social inequality.<ref>[http://www.youtube.com/watch?v=b0PgJ4fqpIM Khat]</ref> Recent "scandals" involving Mad Cow Disease in Britain, <ref>[http://www.centerforfoodsafety.org/campaign/food-safety/mad-cow-disease/other-resources/a-consumers-guide-to-mad-cow-disease/history-of-rendering-cattle-cannibalism-in-the-usa/ History of Rendering]</ref> the fraudulent supply of horse meat sold as beef in Europe,<ref>[http://www.theaustralian.com.au/news/world/horsemeat-scandal-a-global-conspiracy/story-e6frg6so-1226574880191 Horsemeat a global conspiracy]</ref> rat poison found in Polish dairy products<ref>[http://www.wbj.pl/article-61746-scandals-rock-polish-food-exports.html Scandals Rock Polish Food Exports]</ref> and rat meat fraudulently sold as lamb in China<ref>[http://www.zerohedge.com/news/2013-05-03/forget-horse-meat-or-fake-tuna-rat-meat-being-sold-lamb-china Rat Meat Sold as Lamb in China]</ref> could be seen as the logical conclusion of Rowbotham's analysis, as economic pressures build to systematically debase the quality of inputs throughout the food chain as producers fight the effects of cost-push inflation and try to satisfy the need for ever-increasing productivity in the industrialized food industry by systematically debasing their products until they are not fit for human consumption, but are allowed to be consumed by the authorities anyway because of the urgent need to feed the general population within their shrinking incomes.<ref>[http://www.edmundconway.com/2013/02/horse-meat-scandal-the-economics/ Horse meat scandal: the economics]</ref><ref>[http://www.theaustralian.com.au/news/world/horsemeat-scandal-a-global-conspiracy/story-e6frg6so-1226574880191 Horsemeat a global conspiracy]</ref> For example, it is alleged that Mad Cow Disease was caused by British authorities reducing heating standards in the waste meat rendering process to reduce the cost of food production in Britain. Food scandals are becoming so prevalent a new term "Food Fraud" has become popular to describe this escalating phenomenon, mirroring monetary fraud in the wider economic system.<ref>[http://www.zerohedge.com/news/2013-05-03/forget-horse-meat-or-fake-tuna-rat-meat-being-sold-lamb-china Rat Meat Being Sold as Lamb in China]</ref> If Rowbotham's analysis is correct, these food contamination and food debasement scandals will become ongoing and endemic in coming years, but may be censored by the authorities in future to avoid widespread protests.<ref>[http://www.zerohedge.com/news/2013-02-11/guest-post-more-stealth-inflation-maker%E2%80%99s-mark-slashes-alcohol-content More Stealth Inflation]</ref><ref>[http://www.edmundconway.com/2013/02/horse-meat-scandal-the-economics/ Horse meat scandal: the economics]</ref><ref>[http://www.zerohedge.com/contributed/2013-02-14/hidden-inflation-everywhere-watered-down-bourbon-horse-meat-chili Hidden Inflation Everywhere]</ref><ref>[http://en.wikipedia.org/wiki/2008_Chinese_milk_scandal Chinese Milk Scandal]</ref> This has already occurred in China with authorities trying to censor reports of toxic melamine in Chinese milk products<ref>[http://en.wikipedia.org/wiki/2008_Chinese_milk_scandal Chinese Milk Scandal]</ref> and in the UK with British authorities downplaying or delaying information relating to the huge scale of the horse meat scandal.<ref>[http://www.youtube.com/watch?v=SxZtfi2pYNo&list=SPPszygYHA9K2ZtV_1KphSugBB7iZqbFyz&index=6 Horsemeat Burgers], Max Keiser</ref> Max Keiser has made a direct connection between stealth monetary debasement throughout the banking system and stealth debasement of inputs throughout the British food chain.<ref>[http://www.youtube.com/watch?v=SxZtfi2pYNo&list=SPPszygYHA9K2ZtV_1KphSugBB7iZqbFyz&index=6 Horsemeat Burger]</ref> Quality adjustments in official CPI measurements often ''reduce'' the rate of inflation by assuming quality ''improvements'' - however no government has taken into account these food scandals in ''increasing'' the effective rate of inflation by taking into account dramatic ''reductions'' in the quality of food production.<ref>[http://www.abs.gov.au/websitedbs/webfaq.nsf/home/consumer+price+index+faqs CPI FAQs]</ref><ref>[http://www.econ.rochester.edu/people/BilsPapers/growth_qje_revision_August_2008.pdf BLS paper on CPI adjustments for quality]</ref><ref>[http://www.zerohedge.com/news/2013-03-02/first-horsemeat-trading-now-59-tuna-sold-us-isn%E2%80%99t-tuna 59% Of Tuna Isn't Tuna]</ref> If the dramatic degradation in the quality of food production was fully taken into account, it is likely that "true" inflation would be measured far in excess of official figures, and may in some instances (such as with the UK horse meat scandal) be reaching something similar to hyperinflation in some years, as food that changes from "beef" to "horse meat" is effectively a tiny fraction of the quality of the product of only a few years or months ago.<ref>[http://www.youtube.com/watch?v=SxZtfi2pYNo&list=SPPszygYHA9K2ZtV_1KphSugBB7iZqbFyz&index=6 Horsemeat Burgers], Max Keiser</ref>

Others consider that the core problem is not food security, nor overpopulation, nor environmental destruction, nor excessive carbon emissions due to non-pricing of energy producing externalities, nor excessive "specialization" of labor in the midst of monetary dysfunction, but excessive government regulation, causing capital destruction.<ref>[http://mises.org/daily/5277/When-Capital-Is-Nowhere-in-View When Capital Is Nowhere In View], Jeffrey Tucker</ref><ref>[http://www.garynorth.com/public/8071.cfm Population Growth as Propaganda], Gary North</ref><ref>[http://www.marketoracle.co.uk/Article39449.html An Orwellian America], Gordon T Long</ref>

The fundamental problem with the current monetary system that all Austrian economists agree on is that in the midst of constant credit creation and monetary dysfunction is it ''impossible'' to know what unsustainable [[malinvestment]]s are taking place in the economy, except to acknowledge that they ''must'' be taking place somewhere in the midst of unsustainable credit growth.<ref>[http://www.goldensextant.com/SavingtheSystem.html Saving the System], Robert K. Landis</ref>

===Effects on economic health: Ponzi scheme dynamics===

According to Michael Rowbotham and many Austrian theorists the expansion of money through debt is unsustainable and necessarily fuels and creates [[Austrian Business Cycle Theory|economic bubbles]].<ref>[http://mises.org/daily/5567/Hayeks-Ghost-Haunts-the-World Hayek's Ghost Haunts the World], Jeffrey Tucker</ref> This concentrates wealth in the hands of private banks as the populace is forced into [[debt]] simply to own a home and educate their children, hoping that the loans can be repaid by others going into debt in ''greater amounts'' later to purchase the assets they themselves have purchased through incurring large amounts of personal debt.<ref name="death"/> However, debt expansion leads to price appreciation of assets through speculation as the financial market becomes riskier and this process is unsustainable in the long run, with the last cycle of indebted being wiped out when they cannot find anyone to buy the assets they themselves have purchased by going into massive debt. Doug Noland, Steve Keen, Edward Chancellor, Bill Bonner and many others have compared this type of market to an enormous State-sponsored global monetary [[Ponzi scheme]].<ref>[http://www.debtdeflation.com/blogs/2008/12/13/the-worlds-biggest-ponzi-scheme/ The World's Biggest Ponzi Scheme], Steve Keen</ref><ref>[http://www.iimagazine.com/article.aspx?articleID=1234345 Ponzi Nation,"Who is Hyman Minsky?", para 6]</ref><ref>[http://www.marketoracle.co.uk/Article26678.html One Gargantuan Ponzi Scheme], Paul Hallyer</ref><ref>[http://prudentbear.com/dmdocuments/HowCouldIrvingFisherHaveBeenSoWrong.pdf How Could Irving Fisher Have Been So Wrong?], Doug Noland</ref><ref>[http://globaleconomicanalysis.blogspot.com/2010/08/former-fed-governor-mishkin-paid-124000.html Mishkin], MISH</ref><ref>[http://www.lewrockwell.com/bonner/bonner467.html Warning], Bill Bonner</ref>

The bust phase of this Ponzi-like [[business cycle]] occurs when "debt-based" money growth cannot continue because the debt levels are already at saturation levels, meaning growth in debt money slows or contracts, catching newly indebted businesses and consumers who are left out of the growth cycle, triggering a combined liquidity and solvency crisis when markets seize up due to a collapse in the artificially-supported prices in financial markets.<ref name="death"/><ref name="Ponzi Nation"/>

===Effects on the environment===
There are also critics in the left-wing and environmentalist camps who contend fractional reserve banking (by creating a necessity for indefinite [[economic growth]]) leads to environmental destruction and a sudden, catastrophic depletion of the earth's natural resources as the unsustainable, exponential consumption of the world's scarce natural resources reaches its inevitable limits.<ref>David Korten, ''Agenda For A New Economy'', Berret-Koehler, 2009</ref><ref>[http://www.monbiot.com/archives/2004/10/06/no-longer-obeying-orders/ George Monbiot], about five sixths of the way down</ref>

===Inherent problems with the system===

Some monetary reformers predict that there will be an increased incidence of financial crises in the developed world, as economic and population growth inevitably slow and as the success of financial sector lobbying results in increased tax loopholes and a reduction in effective redistributive [[tax]]es which, combined with the debt-legacy of the [[welfare state]], allows an intense and unsustainable concentration of wealth and political power in the financial services sector.<ref name="death">{{cite book |last= Rowbotham |first= Michael |title= The Grip of Death: A Study of Modern Money, Debt Slavery and Destructive Economics | year= 1998 |publisher= Jon Carpenter Publishing |isbn= 9781897766408 }}</ref><ref>[http://www.youtube.com/watch?v=TdVc40Mc9cQ&feature=related Andrew Sheng, INET presentation]</ref>

Some monetary reformers argue that perverse incentives in the financial services industry lead to collusive relationships between governments and bankers which are economically and socially destablizing in the long run.<ref>[http://mises.org/media/4014 The Economics of Legal Tender Laws], Jorg Guido Hulsmann</ref>

Given that the financial system requires ever higher levels of indebtness from the general populace for its solvency, it is vital that the indebted "victims" who must sink deeper into debt for the system to survive do so voluntarily and willingly and are not made aware of the consequences of purchasing consumables with debt money.<ref name="death">{{cite book |last= Rowbotham |first= Michael |title= The Grip of Death: A Study of Modern Money, Debt Slavery and Destructive Economics | year= 1998 |publisher= Jon Carpenter Publishing |isbn= 9781897766408 }}</ref> Some isolated politicians have previously highlighted the fact that mainstream media organizations appear to downplay or minimize the seriousness of deficit spending by government and debt-sourced spending of all kinds.<ref>[http://www.senate.gov/~budget/democratic/statements/2005/fs_reconciliationfloorstmt102005.pdf Speech by Senator Kent Conrad (D-ND) on October 20, 2005 regarding the "misleading" reporting of deficit spending by the mainstream media]</ref> Euphemisms for debt and personal and national bankruptcy associated with debt have been developed to delay a mass panic away from government bonds or debt. For example, the associated growth of debt-based derivatives during the upward phase of the debt money cycle was referred to as "[[innovation]]" in financial markets.<ref>[http://www.nytimes.com/2007/12/03/opinion/03krugman.html?em&ex=1196917200&en=ac60abcdbd977d07&ei=5087%0A Innovating Our Way to Financial Crisis, by Paul Krugman]</ref>

[[Bankruptcy]] laws differ to a small degree in different jurisdictions but in all developed economies unpaid debt results in legal penalties, property confiscation on behalf of the creditor and income [[sequestration]]. Although in Christian, Jewish and Muslim religious practice there have been traditions of debt relief or laws against [[usury]], in no modern Western jurisdiction are any debts periodically forgiven or cancelled in recognition of the inherent impossibility of repaying debts in circumstances where the debt-based monetary cycle has inevitably resulted in too little new [[debt money]] being injected into the [[money supply]] to pay for the currently outstanding debts.<ref>[http://www.nakedcapitalism.com/2007/11/new-bankruptcy-law-backfires-by.html Bankruptcy law backfires]</ref>

On a national level, if the issuance of [[government bonds]] becomes unsustainable, sovereign [[bankruptcy]] can occur - and has occurred many times in history.<ref>[http://mises.org/daily/4869 Can the Fed Become Insolvent?], Robert Murphy</ref><ref>[http://elainemeinelsupkis.typepad.com/money_matters/2007/10/greenspaniel-an.html Greenspaniel and U.S. bankruptcy]</ref><ref>[http://www.prudentbear.com/index.php/thebearslairview?art_id=10493 Dee-Fault!], Martin Hutchinson, Prudent Bear</ref> [[Sovereign debt]] crises due to the inability of nations to pay interest on [[government bonds]] have occurred frequently and regularly in the third world and less frequently (every 30 years or so) in the first world as a result of high levels of unsustainable public debt - often because private debts are assumed by a corrupt government through large private bank bailouts.<ref>[http://www.dailymail.co.uk/debate/article-1331076/Ireland-bailout-Lets-frank-7bn-bunch-liars-crooks-bunglers.html Ireland Bailout], Alex Brummer</ref><ref name="Willie_Misdiagnosis">[http://www.marketoracle.co.uk/Article24543.html QE2 and the Great Economic Misdiagnosis], Jim Willie, November 24, 2010.</ref> The [[Latin American debt crisis]] is an example of sovereign debt levels becoming unsustainable, resulting in a [[currency crisis]] and economic collapse, as [[interest rates]] rise precipitously due to the inability of the national government to attract financiers to purchase new [[government bonds]] to inject new debt money into the ailing economy.<ref name="Willie_Misdiagnosis" />

At such times, it is the responsibility of the [[IMF]] to come in as a kind of supranational [[central bank]] to mediate between the national government and international financiers.<ref>[http://globaleconomicanalysis.blogspot.com/2011/05/imf-chief-pulled-from-plane-in-new-york.html Time to Dissolve the IMF], MISH</ref> The role of the [[IMF]] as [[central bank]] to the world has similar responsibilities and risks inherent in [[central bank]]ing which are described below in relation to the role of the [[Federal Reserve]]. If the [[IMF]] repeatedly intervenes to save financiers from loss when sovereign bankruptcy occurs, this has a tendency to induce [[moral hazard]] and can encourage the financing of reckless government spending and borrowing.<ref>[http://www.rgemonitor.com/41 IMF Reform and International Lender of Last Resort, RGE Monitor]</ref><ref>[http://info.interactivist.net/article.pl?sid=02/11/07/199213&mode=thread&tid=8 Banking Bunkum, by Henry C.K. Liu]</ref><ref name="Willie_Misdiagnosis" />

A [[single currency]] regime such as the [[Euro]] can mask national liquidity or solvency crises, by ensuring that a national currency is not quickly exchangeable for another, thereby restricting the ability of national governments to depreciate their currencies and cutting off the possibility that the real value of [[government bond]] interest repayments could decline relative to other currencies.<ref>[http://www.dailymail.co.uk/news/article-1316442/Anglo-Irish-Bank-bail-Will-Irish-economic-meltdown-hit-UKs-fragile-recovery.html Irish Meltdown], UK Mail On-line,</ref><ref>[http://www.marketoracle.co.uk/Article24459.html Ireland Bailout Consequences for Britain, Portugal Next?], Nadeem Walayat</ref><ref name="Willie_Misdiagnosis" /><ref>[http://news.goldseek.com/RichardDaughty/1192374060.php The Mogambo Theory of Currency Relativity]</ref><ref>[http://www.youtube.com/watch?v=IvJEJEGzeU8&feature=player_embedded#! Putin ditches dollar], RTTV</ref> This may however increase the risk of bond default where indebted national governments cannot pay back the interest payments in the denominated common currency.<ref>[http://www.dailymail.co.uk/news/article-1316442/Anglo-Irish-Bank-bail-Will-Irish-economic-meltdown-hit-UKs-fragile-recovery.html Irish Meltdown], UK Mail On-line,</ref><ref>[http://blog.mises.org/15129/bagus-explains-the-ecb-and-the-euro/ The Tragedy of the Euro], Philipp Bagus</ref>

===Types of downturns===
{{main|Austrian Business Cycle Theory}}
[[Austrian Business Cycle Theory]] states that artificially low interest rates set by any coercive price-fixing entity will inevitably stimulate malinvestment in the wrong capital projects which will inevitably lead to an unsustainable boom followed by a bust.<ref>[http://mises.org/daily/5164/The-Cure-Low-Interest-Rates-Is-the-Disease The Cure (Low Interest Rates) Is The Disease], Thorsten Polleit</ref> However, the precise nature of the downturn and the way in which losses are allocated within the economy are both dependent on the actions government and bankers take to forgive debt or control credit and there are two main kinds of debt money contraction that can cause a collapse in the value of inflated assets.

A "credit squeeze" occurs where new debt money is difficult to access without a high [[credit rating]]. At such times marginal borrowers, or those who have borrowed at the end of any debt-induced asset bubble, get "squeezed" out of further borrowing and a contraction in the growth of new debt money occurs, triggering a slow down in the growth of inflated assets. Those assets can then be "harvested" by the [[private bank]]s through widespread [[foreclosure]] or [[bankruptcy]] and re-sold to those with the money to buy the distressed assets.<ref name="marketoracle.co.uk">[http://www.marketoracle.co.uk/Article2882.html Market Fundamentalism, by Richard C. Cook]</ref>

A "credit crunch" occurs where new debt money is not available at any [[interest rate]] - even for those with previously acceptable credit ratings - due to widespread insolvency in the banking system. At such times, it is the banking system itself that is [[insolvent]] and other financial institutions (including overseas financiers) become reluctant to lend to the domestic banking system, resulting in the domestic banking system being unable to issue loans even to credit worthy borrowers.<ref>[http://en.wikipedia.org/wiki/Credit_crunch Credit crunch], Wikipedia definition</ref>

At any stage during the downward spiral of a "credit crunch", the [[central bank]] in a modern economy can try to save the system from complete economic meltdown by purchasing (either indefinitely or temporarily) the failed debts of the private banks.<ref>[http://www.youtube.com/watch?v=PTUY16CkS-k&feature=player_embedded#! Quantitative Easing Explained]</ref><ref>[http://www.marketoracle.co.uk/Article24489.html Does the Fed Create Money?] Michael Pento</ref><ref>[http://www.telegraph.co.uk/money/main.jhtml?view=DETAILS&grid=A1YourView&xml=/money/2007/12/19/ccom119.xml ECB's mind-numbing cash injection]</ref> This involves swapping depreciating "failed" assets with hard cash, thereby allowing the banks to maintain their net asset position and continue to give the impression of solvency to their auditors and depositors. However, doing so results in cash being transferred to the private banks in exchange for [[bad debt]], thereby violating the general economic precept to avoid [[moral hazard]] and effectively makes liquid the failed lending decisions of the [[private bank]]s.<ref>[http://globaleconomicanalysis.blogspot.com/2011/06/prudently-managed-banks-victimized-by.html Prudent Banks Victimized], MISH</ref><ref>[http://www.rgemonitor.com/blog/roubini/228924/ Privatizing Profits and Socializing Losses, by Nouriel Roubini]</ref> In the U.S. banking system this is called "opening the Fed discount window", where the [[Federal Reserve]] temporarily purchases the failed investment portfolios of distressed private banks in exchange for cash. However, this rescue measure may only delay, rather than avoid, the realization of losses in the banking system, as the central bank cannot "force" new borrowing into the system to inject new debt money into the money supply. Somebody has to be a [[counterparty]] to borrow the debt money that is being offered. If all market participants realize a "[[bubble (economics)|bubble]]" has formed in assets markets, there will be few (or no) buyers for new debt money, as no one wants to borrow to buy inflated assets no one else will buy. Money markets can therefore remain illiquid even with intense [[central bank]] support.<ref>[http://www.prudentbear.com/index.php/creditbubblebulletinview?art_id=10511 Favorable or Unfavorable], Doug Noland, Prudent Bear</ref>

Furthermore, banks can go bust even with intense central bank support, if the issue is not one of liquidity, but one of solvency.<ref>[http://www.ft.com/cms/s/0/233ae764-abef-11dc-82f0-0000779fd2ac.html Central Banks have No Plan]</ref><ref>[http://www.rgemonitor.com/blog/roubini/233120 Central Banks get desperate]</ref><ref>[http://www.youtube.com/watch?v=VMngK0t5WkY $20 Trillion in Bad Debt], Max Keiser</ref><ref>[http://www.marketoracle.co.uk/Article27686.html Bernanke's QEx Money Printing Box], Gordon T. Long</ref>

===Market meddling and pushing on a string===
Some monetary economists describe the opening of the Fed discount window after the bursting of an asset bubble and swapping of "junk" with new money as "pushing on a piece of string", as this measure does not solve the key problem – creating new credit (or debt money) to keep up the growth in the money supply and maintain the required level of liquidity in credit markets.<ref>[http://www.mises.org/story/2695 Don't Discount the Fed Discount Window]</ref><ref>[http://www.federalreserve.gov/Pubs/FEDS/2004/200401/200401pap.pdf Monetary Policy in Deflation: The Liquidity Trap in History and Practice]</ref> This is because unlimited central bank money and low interest rates ''allow'' credit creation, but cannot ''force'' it into the system. In order for any new debt money to be created, someone has to ''borrow'' the excess reserves in order for the money to be injected into the system. With an endogenous money system, money is only created if someone wants to borrow money from a bank. If corporations and individuals are already heavily indebted (or insolvent after the bursting of a debt-induced bubble) there are no credit-worthy borrowers to lend to. This means there are no new buyers at the margin to keep asset prices at high levels. If there are no new marginal buyers, "liquidity" - or debt growth - dries up and volumes and prices drop suddenly, forcing liquidation and creating a sudden cascading effect in highly leveraged markets very similar to the end of an unsustainable Ponzi scheme. The only ones able to stimulate the economy are the tiny minority of bankers who have been bailed out by the central bank and even if they spent lavishly to try to "help" the economy, this would in no way compensate for the lack of spending in the general economy.

To encourage fresh borrowing, central banks generally combine these rescue measures with an interest rate cut to encourage more new borrowing to allow the existing (failed) debts to be [[liquidate]]d at or close to their original value. When [[Alan Greenspan]] repeatedly resorted to this tactic to revive illiquid [[money market]]s this became known in the market as the "[[Greenspan put]]", as the effect of these repeated reductions in interest rates was similar to a [[put option]] in the [[stockmarket]], insuring [[bank]]s' lending mistakes would be covered up by the Federal Reserve.<ref>[http://www.iie.com/publications/wp/02-1.pdf Moral Hazard and the "Greenspan Put"]</ref>

When interest rates cannot go any lower (the so-called "zero bound" monetary problem) and people still will not - or cannot - load themselves up with more debt, then to stave off a collapse of market prices due to the drying up of marginal buyers at inflated debt-saturated prices central banks have resorted to "Quantitative Easing" which is the abandonment of interest rate setting and the targeting of bulk purchases of bank assets to artificially pump up their price and keep the banking system solvent.<ref>[http://www.marketoracle.co.uk/Article38855.html QE for Dummies], Dr Martenson</ref> In addition, the Keynesian solution is to run large public deficits and indebt future generations (who, they hypothesize, are more likely to be able to pay through increased future growth).<ref>[http://www.zerohedge.com/news/2013-02-09/paul-krugman-we-should-kick-can-down-road-it%E2%80%99s-responsible-thing-do "Kick the Can Down the Road"]</ref><ref>[http://www.nytimes.com/2010/12/26/business/26view.html?_r=1&scp=1&sq=shiller&st=cse Stimulus Without More Debt], Robert Shiller</ref> Fabian socialists, and Keynesian economists such as Paul Krugman and Robert Shiller, argue that governments must take charge of the responsibility of spending more (and taking on more debt) on behalf of the public (who are too fearful to take on more debt themselves) in order to compensate for the immediate and urgent ''present'' insufficiency in total private consumption.<ref>[http://www.zerohedge.com/news/2013-02-09/paul-krugman-we-should-kick-can-down-road-it%E2%80%99s-responsible-thing-do "Kick the Can Down the Road"]</ref><ref>[http://www.nytimes.com/2011/09/05/opinion/the-fatal-distraction.html?src=me&ref=general The Fatal Distraction], Paul Krugman</ref><ref>[http://www.nytimes.com/2010/12/26/business/26view.html?_r=1&scp=1&sq=shiller&st=cse Stimulus Without More Debt], Robert Shiller</ref><ref>[http://mises.org/daily/5616/Is-the-Need-for-Stimulus-Undeniable Is the Need for Stimulus "Undeniable"?], Hunter Lewis</ref> Paul Krugman and Robert Reich are prominent advocates of the policy of spending trillions of government money to help stimulate the economy, if spending billions does not work.<ref>[http://www.realclearpolitics.com/video/2011/09/01/reich_government_has_to_spend_more_to_get_out_of_debt.html Reich: Government Has To Spend More To Get Out Of Debt]</ref><ref>[http://www.nytimes.com/2010/06/21/opinion/21krugman.html?dbk Budget Deficits], Paul Krugman</ref><ref>[http://globaleconomicanalysis.blogspot.com/2010/10/krugman-and-inevitable-i-told-you-so.html Krugman], MISH</ref><ref>[http://krugman-in-wonderland.blogspot.com/2010/11/inflation-prisoner.html The Inflation Prisoner], William Anderson</ref> For economists such as Paul Krugman, if the "more and more government spending" solution does not work initially, it is a sign that not enough government money has been spent.<ref>[http://www.lewrockwell.com/sowell/sowell44.1.html Fed Up With the Fed?], Thomas Sowell</ref><ref>[http://www.nytimes.com/2010/12/20/opinion/20krugman.html?hp When Zombies Win], Paul Krugman, NY Times</ref><ref>[http://globaleconomicanalysis.blogspot.com/2010/10/krugman-and-inevitable-i-told-you-so.html Krugman], MISH</ref> It is his view that the "deflationary" Japanese recession from 1991/2 could have been cured by the Japanese government going into even more debt than the current net debt to GDP ratio of 110%.<ref>[http://www.nytimes.com/2010/06/21/opinion/21krugman.html?dbk Budget Deficits], Paul Krugman</ref><ref>[http://www.economist.com/node/15867844 Japan's debt-ridden economy], The Economist</ref> Although some commentators have puzzled over exactly which group Krugman blames for the crisis, Krugman repeatedly calls for the government "to do more" and "spend more" as the "responsible" way out of the crisis, regardless of the true culprits or cause of the crisis.<ref>[http://www.zerohedge.com/news/2013-02-09/paul-krugman-we-should-kick-can-down-road-it%E2%80%99s-responsible-thing-do "Kick the Can Down the Road"]</ref><ref>[http://www.nytimes.com/2011/08/08/opinion/credibility-chutzpah-and-debt.html?_r=1&hp Credibility, Chutzpah and Debt], Paul Krugman</ref><ref>[http://www.thedailybell.com/2271/Shock-Krugman-Turns-on-Elites.html Shock Krugman Turns on Elites], The Daily Bell</ref><ref>[http://www.nytimes.com/2011/04/11/opinion/11krugman.html?_r=2&hp Obama Is Missing], Paul Krugman</ref> When pressed to find culprits he identifies "extremist" Republicans and, somewhat paradoxically, those who call for ''fiscal restraint'' to be the real source of the debt crisis and the downgrading of US sovereign debt.<ref>[http://www.nytimes.com/2011/08/08/opinion/credibility-chutzpah-and-debt.html?_r=1&hp Credibility, Chutzpah and Debt], Paul Krugman</ref> How ''increasing'' the debt load will solve the debt problem is never explained, apart from Krugman repeatedly stating that the "long-term" debt problem is not as important as the immediate and urgent "lack of spending" problem.<ref>[http://www.zerohedge.com/news/2013-02-09/paul-krugman-we-should-kick-can-down-road-it%E2%80%99s-responsible-thing-do "Kick the Can Down the Road"]</ref> Krugman has never advocated the simple solution of debt default as the way to solve the debt crisis, despite de-emphasizing the scale of the debt by arguing that we (mostly) "owe it to ourselves".<ref>[http://krugman.blogs.nytimes.com/2011/12/28/debt-is-mostly-money-we-owe-to-ourselves/ Debt is mostly money we owe to ourselves]</ref> If this was the case, debt default would be the easiest solution. On the other hand, Paul Krugman has yet to clearly identify a country or a time when government spending became excessive or was out of control and resulted in too much accumulation of debt and malinvestment during an economic slowdown. He has intimated that, perhaps, the Greek government may have spent too much, but he treats that as an isolated case and not applicable to the rest of Europe or the United States, despite some countries having comparable debt levels to Greece's.<ref>[http://www.nytimes.com/2011/09/12/opinion/an-impeccable-disaster.html?_r=1&hp An Impeccable Disaster], Paul Krugman</ref> He has also never explained or written about what happens ''after'' government stimulus spending inevitably stops, which Austrians argue would inevitably result in an even bigger slump if it is not continually replaced with something similar or bigger.<ref>[http://krugman.blogs.nytimes.com/2013/05/09/the-moral-equivalent-of-space-aliens/ Space Aliens], Paul Krugman. Quote: "To almost everyone’s surprise, Japan — Japan! — has emerged as the advanced country most willing to break with austerian orthodoxy and try a combination of aggressive monetary and fiscal stimulus. The verdict on Abenomics is, of course, still out, although early indications are good. But how did this happen? David Pilling , writing in the FT, suggests that it was the double shock of the 2011 tsunami and China’s overtaking of Japan as the number 2 economy by market value. These shocks, he argues, broke through the fatalism and convinced the Japanese elite that something must be done. Long-time readers know that I once joked that what we needed in America was a fake threat from space aliens, which would jolt us into action on stimulus; '''if the aliens were later revealed as a hoax, no matter'''. Well, it looks as if Japan has found the moral equivalent of space aliens. Good for them." (emphasis added)</ref> If further attempts at artificial government-induced "stimulus" ''are'' attempted, Austrians argue that this pointless exercise would simply further distort capital structures throughout the economy. They therefore see the slump as curative, even if it results in bank runs and financial crises. They see light at the end of the depression, once the re-pricing of capital goods and financial assets returns the economy to a sound, stable footing - provided ''no bailouts occur, debts are liquidated and reduced or cancelled and provided asset prices are permitted to fall''.<ref>[http://www.zerohedge.com/news/guest-post-keynesian-solutions-after-total-failure-try-try-again Keynesian Solutions Total Failure]</ref><ref>[http://dailyreckoning.com/the-pain-of-restoring-investor-confidence/ The Pain of Restoring Investor Confidence], Bill Bonner</ref><ref>[http://dailyreckoning.com/government-spending-and-the-path-to-money-printing/ Government Spending and the path to Money Printing], Bill Bonner</ref><ref>[http://www.prudentbear.com/index.php/featuredcommentaryview?art_id=10485 Krugman Is Eating America Alive], Neeraj Chaudhary, Prudent Bear</ref><ref>[http://www.marketoracle.co.uk/Article25163.html Keynesian models], Robert Murphy</ref><ref>[http://krugman-in-wonderland.blogspot.com/2010/11/inflation-prisoner.html The Inflation Prisoner], William Anderson</ref><ref>[http://www.lewrockwell.com/north/north925.html Yes, Virginia, There Really Is a Free Lunch], Gary North</ref><ref>[http://mises.org/daily/5257/They-Want-Us-to-Love-the-Fed They Want Us to Love the Fed], William L. Anderson</ref><ref>[http://lewrockwell.com/rockwell/many-collapses-of-keynesianism189.html The Many Collapses of Keynesianism], Lew Rockwell,</ref>

Although there is active debate as to whether Keynesian "stimulus" policy (spending money and thereby indebting future generations, with the government spending debt-sourced money on projects the private sector would not touch) can actually help the economy long term,<ref>[http://www.mises.org/daily/6357/Feds-Policies-Expose-Mainstream-Fallacies Mainstream Fallacies], Frank Shostak</ref><ref>[http://www.zerohedge.com/news/guest-post-keynesian-solutions-after-total-failure-try-try-again Keynesian Solutions Total Failure]</ref><ref>[http://dailyreckoning.com/the-pain-of-restoring-investor-confidence/ The Pain of Restoring Investor Confidence], Bill Bonner</ref><ref>[http://dailyreckoning.com/government-spending-and-the-path-to-money-printing/ Government Spending and the path to Money Printing], Bill Bonner</ref><ref>[http://www.prudentbear.com/index.php/featuredcommentaryview?art_id=10485 Krugman Is Eating America Alive], Neeraj Chaudhary, Prudent Bear</ref><ref>[http://www.marketoracle.co.uk/Article25163.html Keynesian models], Robert Murphy</ref><ref>[http://krugman-in-wonderland.blogspot.com/2010/11/inflation-prisoner.html The Inflation Prisoner], William Anderson</ref><ref>[http://www.lewrockwell.com/north/north925.html Yes, Virginia, There Really Is a Free Lunch], Gary North</ref><ref>[http://mises.org/daily/5257/They-Want-Us-to-Love-the-Fed They Want Us to Love the Fed], William L. Anderson</ref><ref>[http://lewrockwell.com/rockwell/many-collapses-of-keynesianism189.html The Many Collapses of Keynesianism], Lew Rockwell,</ref> there is no argument that this would undoubtedly help the present group of private bankers, as increased income from the interest payments on new government bond issuance offsets the decline in private sector debt and allows banks to survive when otherwise they may face collapse due to the fatal impairment of their balance sheets through private debt write-offs after an unsustainable debt-fuelled bubble bursts.<ref>[http://georgewashington2.blogspot.com/2010/08/quantitative-easing-wont-help-economy.html QE won't help the economy]</ref><ref>[http://moneymorning.com/2010/11/19/federal-reserves-quantitative-easing-strategy-save-the-us-economy/ QE won't save the economy]</ref>

As government debt is effectively an asset on the books of the banks, increasing Treasury bond issuance necessarily increases the profitability and net asset position of the debt-issuing banks - at least until government insolvency or mass tax evasion renders the value of those bonds worthless.<ref>[http://www.marketoracle.co.uk/Article25313.html Asset Speculation and Capital Destruction], Jim Willie</ref><ref>[http://www.prudentbear.com/index.php/featuredcommentaryview?art_id=10485 Krugman Is Eating America Alive], Neeraj Chaudhary, Prudent Bear</ref>

Perhaps in recognition that increasing debt to solve a debt crisis does not work even in the short term, in early 2013 Krugman resorted to advocating the coining of a debt-free trillion dollar platinum coin to solve the debt crisis and revive the economy.<ref>[http://www.thenewamerican.com/economy/economics/item/14238-obama%E2%80%99s-trillion-dollar-coin-exposes-federal-reserve-scam Obama’s Trillion-Dollar Coin Exposes Federal Reserve Scam], Alex Newman, ''New American''</ref><ref>[http://webofdebt.wordpress.com/2013/01/18/the-trillion-dollar-coin-joke-or-game-changer/#more-5323 The Trillion Dollar Coin], Ellen Hodgson Brown</ref> Some Austrians have argued Krugman's support of the trillion dollar coin is the logical ''reductio ad absurdum'' of Keynesian economics.<ref>[http://bastiat.mises.org/2013/01/trillion-dollar-coins-and-alien-invasions/ Trillion Dollar Coins and Alien Invasions], Daniel Sanchez</ref>

===Inequities in the debt-based monetary system===
Many inequities arise because of the damage an overly leveraged financial system and big spending government can have on the real economy.<ref>[http://www.marketoracle.co.uk/Article26581.html Ten Reasons The Banksters Got Away With It], Danny Schechter</ref><ref>[http://www.marketoracle.co.uk/Article28949.html United States of Denial], James West</ref> The standard government strategy to help the banks out of the "tailspin" of an insolvency crisis follows a standard chronology:

The government first tries to stimulate the economy and spend money into the markets directly without individuals needing to borrow and spend, thereby "inflating" its way out of economic crisis by causing asset prices to rise and bank balance sheets to appear solvent. It currently does this principally by borrowing newly created money from the central bank and then spending this new money on projects that the private sector is not already engaged in.<ref>[http://www.marketoracle.co.uk/Article25964.html QE is Nothing New], Mike Hewitt</ref><ref>[http://www.mises.org/daily/6357/Feds-Policies-Expose-Mainstream-Fallacies Mainstream Fallacies], Frank Shostak</ref>

Unfortunately, there is no easy solution to an economy-wide insolvency crisis caused by excessive credit expansion.<ref>[http://www.zerohedge.com/news/2013-11-07/marc-faber-warns-karl-marx-was-right Karl Marx Was Right], Marc Faber</ref><ref>[http://www.prudentbear.com/index.php/creditbubblebulletinview?art_id=10511 Favorable or Unfavorable], Doug Noland, Prudent Bear</ref> In a sound money system the credit would not have been created, so dealing with the problem once created is inherently flawed. If a slow down of money and credit occurs, this exposes those who came late to the boom and transfers assets to the banking system via widespread insolvency. If the central bank encourages even more lending or the government spends more money this creates more distortions and uncertainties in the market, hampering long term investment. Government spending is often attempted as a way to stave off widespread insolvencies but this only further distorts the economy through widespread malinvestment.<ref>[http://mises.org/store/Rollback-P10449.aspx ''Rollback''], Thomas Woods</ref> Later, after the immediate crisis, when tax receipts from the private sector decline due to reduce private investment, governments are often forced to reduce basic social services or welfare to the poor to pay for the increased bond payments to bankers and other wealthy investors, making those least responsible and least able to pay for the crisis suffer wrenching economic hardship due to excessive public and private debt/credit creation.<ref>[http://www.marketoracle.co.uk/Article26581.html Ten Reasons The Banksters Got Away With It], Danny Schechter</ref><ref>[http://mises.org/store/Rollback-P10449.aspx ''Rollback''], Thomas Woods</ref>

Antal E. Fekete compares quantitative easing to the repeated supply of opium by an immoral drug dealer to a dependent drug addict:<ref>[http://www.marketoracle.co.uk/Article26339.html Silver and Opium], Antal E. Fekete</ref>

{{quote|The explanation for this self-destructing behavior is the addictive, debilitating and mind-corrosive nature of paper money, in direct analogy with that of opium. The high caused by administering the opium pipe to the patient (read: administering QE) had to be repeated when the effect faded by a fresh administration of more opium (read: more QE2).}}

Aside from the [[moral hazard]] issue, the key risk with [[quantitative easing]] is that the [[central bank]] exposes the financial system to disruptive inflation, as the growth in the [[money supply]] spirals out of control due to the need to save the [[bank]]s from themselves.<ref>[http://www.lewrockwell.com/north/north961.html Tiger], Gary North</ref><ref>[http://www.marketoracle.co.uk/Article27530.html The Fed Obliterates the Savings Ethic], Douglas French</ref> This eventually tends to precipitate a currency and/or government bond crisis, as the debt-based currency becomes completely dysfunctional when either the currency becomes worthless or when debtors - including government debtors - cannot even pay interest on the debt money.<ref>[http://www.marketoracle.co.uk/Article25964.html QE is Nothing New], Mike Hewitt</ref><ref>[http://www.marketoracle.co.uk/Article25313.html Asset Speculation and Capital Destruction], Jim Willie</ref><ref>[http://www.swlearning.com/economics/hall/hall-lieb2e-upd/ppt_lecture/exchange_rate_macro_policy.ppt Exchange Rates and Macroeconomic Policy]</ref><ref>[http://www.sciencedirect.com/science?_ob=ArticleURL&_udi=B6VGT-41WBFRG-1&_user=10&_rdoc=1&_fmt=&_orig=search&_sort=d&view=c&_acct=C000050221&_version=1&_urlVersion=0&_userid=10&md5=4e89075114dcdb58b503172ff1801bd2 Central Bank Intervention]</ref><ref>[http://www.federalreserve.gov/newsevents/speech/mishkin20071026a.htm Financial Instability and the Federal Reserve as a Liquidity Provider, by Frederic S. Mishkin]</ref>

For these reasons, a collapse in confidence in the [[solvency]] of the domestic banking system (and the central government) is one of the most complex and difficult policy issues any central government can face.<ref>[http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100008812/irelands-debt-servitude/ Ireland's Debt Servitude], Ambrose Evans-Pritchard, UK Telegraph</ref> If the central bank continues to try to save the current players in the banking sector by continually printing money and inflating its way out of the crisis, at some point hyperinflation suddenly appears, and has appeared many times in history.<ref>[http://mises.org/daily/4869 Can the Fed Become Insolvent?], Robert Murphy</ref><ref>[http://blog.mises.org/14626/quantitative-easing-explained/ Quantitative Easing Explained], YouTube video</ref>

Some commentators have observed that the media and the Fed have to constantly come up with new terms (such as "quantitative easing") to hide the fact that they are simply repeating the same failed policy of monetary inflation that corrupt sovereigns have deployed at the end of failed regimes many times over the millenia.<ref>[http://www.marketoracle.co.uk/Article25679.html Many Euphemisms for Money Creation], Thorsten Polleit</ref> This is also now referred to by some [[monetary reform]]ers and [[economist]]s as "socialism for the rich and capitalism for the poor", as many indebted [[consumers]] will still lose their [[house]]s and be declared [[bankrupt]] regardless whether or not the central bank intervenes to save marginal lenders who have been made [[insolvent]] through their mis-timing of the [[credit cycle]].<ref>[http://www.youtube.com/watch?v=ny6YI2JCP9Q&feature=player_embedded#at=147 Blood Starts Flowing on the Streets], Max Keiser interview with Gerald Celente</ref><ref>[http://www.rgemonitor.com/blog/roubini/228924/ Privatizing Profits and Socializing Losses, by Nouriel Roubini]</ref><ref>[http://www.beearly.com/pdfFiles/Satyajit%20Das.pdf Regulatory Debauchery by Satyajit Das]</ref> Future generations of innocent taxpayers may ultimately finance any [[bail out]] of reckless lenders, as the money used to fund any [[bail out]] will be funds diverted from the general revenue of the central government.<ref>[http://www.ft.com/cms/s/0/f4cf8426-654d-11dc-bf89-0000779fd2ac.html A run on the bank]</ref>

In times of crisis, some bankers still refer to [[Walter Bagehot]]'s 1873 commentary on monetary crises, ''Lombard Street'', in an attempt to gain insights into the way in which central bankers should revive illiquid banking systems.<ref>[http://www.prudentbear.com/index.php/thebearslairview?art_id=10513 The Evils of Crony Capitalism], Martin Hutchinson</ref><ref>[http://blogs.ft.com/economistsforum/2010/04/a-history-lesson-from-lombard-street-for-wall-street-in-2010/ History Lesson from Lombard Street], Roger Farmer, Ft.com</ref> However this old text may be outdated in circumstances where the community's debt limits have been reached and where the banking crisis arises from insolvency or environmental depletion rather than illiquidity.<ref>[http://www.youtube.com/watch?v=0KInB2rvgaY Eco Eco Disaster], Keiser Report</ref><ref name="Willie_Misdiagnosis" /><ref>[http://www.prudentbear.com/index.php/creditbubblebulletinview?art_id=10511 Favorable or Unfavorable], Doug Noland, Prudent Bear</ref> A prime example where aging demographics combined with reckless bank lending in a purely fiat debt-based monetary system resulted in economic problems which no amount of money printing or government spending could fix can be found in the case of the [[Japanese asset price bubble]].<ref>[http://www.economist.com/displaystory.cfm?story_id=10286992 The Japanese and American Bubbles: Been There, Done Some of That]</ref> Some believe the West will repeat the mistakes of the Japanese and the result will be worldwide monetary disorder and instability and economic decline.<ref>[http://dailyreckoning.com/destiny-is-demography/ Destiny is Demography], Bill Bonner</ref><ref>[http://www.economist.com/displaystory.cfm?story_id=10286992 The Japanese and American Bubbles: Been There, Done Some of That]</ref><ref>[http://www.prudentbear.com/index.php/creditbubblebulletinview?art_id=10508 Monetary Disorder], Doug Noland</ref><ref>[http://www.prudentbear.com/index.php/creditbubblebulletinview?art_id=10571 Crumbling Pillars], Doug Noland. Quote: "Whether it’s monetary or fiscal policy - at home or abroad – there seems to be confirmation everywhere that policymaking has become largely ineffectual and, increasingly, incapacitated. This is fundamental to my bearish thesis. With each passing market day it seems to take a greater leap of faith to believe that additional monetary and fiscal stimulus will ameliorate a sovereign debt crisis fomented by ultra-loose monetary and fiscal policies. Increasingly, it appears impossible for policies that fomented monetary instability to now somehow engender a return to market stability. Liquidity-challenged global markets are convulsing through a problematic period of de-risking and de-leveraging, and once such a process commences it basically has to run its course. Efforts to intervene in the marketplace, as we’ve been witnessing, are likely to beget only greater uncertainty and instability."</ref><ref>[http://www.youtube.com/watch?v=zbQq33iTsrw Rigged bank rates]</ref>

===Debt Saturation, Unstable Markets and the Keynesian Endpoint===

Keynesians often refer to Keynes' dictum "In the long run we are all dead" to justify artificially low interest rates and short-term stimulus spending by government to "kick start" a stalled economy where pre-existing private debt levels have caused spending to collapse. Tyler Cowen has responded to this Keynesian rejoinder with the following response:<ref>[http://www.nytimes.com/2011/03/06/business/06view.html The Fiscal Illusion], Tyler Cowan</ref>

{{quote|The famous Keynesian rejoinder, “In the long run we are all dead,” is less comforting when that long run comes into sight. Short-run planning is a hard carousel to stop, especially when there are frequent election cycles, but the federal government must act soon...

The technocratic Keynesian recommendation was to run deficits in bad times and surpluses in good times. But except for one stretch during the Clinton administration, this notion has been broken since the early 1980s. In the United States, at least, Keynesian economics has failed to find the necessary political institutions to enact and sustain a wise version of the theory.

Now that fiscal constraints are starting to bite, many politicians are afraid to reform or even to discuss changes in the largest problem areas...

Fiscal austerity may sometimes sound like a dogmatic religion, but fixed principles often help us do the right thing, especially when temptation beckons. Professor Buchanan argued that the real choice was between a religion of budget balance and a rule of illusion.

...the rigor of the numbers will soon sweep away the fiscal illusion. The only question is whether we will end the charade on our own terms or continue to play the fool.}}

Nassim Taleb posits that with increasing debt comes increasing fragility as markets end up standing on a "knife-edge" between precipitous currency devaluation due to money printing and widespread insolvency/depression due to slowing organic money supply growth.<ref>[http://www.zerohedge.com/news/2013-01-25/taleb-skin-game-and-his-disdain-public-intellectuals Nassim Taleb Interview on Anti-Fragile]</ref> It therefore becomes increasingly difficult for central banks to control volatility in heavily indebted world markets, until it ultimately becomes impossible to control.<ref>[http://www.zerohedge.com/news/2013-01-25/taleb-skin-game-and-his-disdain-public-intellectuals Nassim Taleb Interview on Anti-Fragile]</ref>

No current commentator predicts bankers, politicians or government employee unions will spontaneously reform themselves.<ref>[http://www.lewrockwell.com/lewrockwell-show/2011/03/27/193-gold-guns-and-getaway-plans/ Gerald Celente interview with Lew Rockwell]: Lew Rockwell: "When do you see social unrest coming to this country?" Gerald Celente: "I see more crime happening in this country, and social unrest at a much lower level. The people in this country don't have what it takes... This is a country of soccer mommies boys. We're prescription drug-addicted and we're junk food fat... Look at the way they dress, look at the way they talk, look how the Nation's become so Snooki-stupid."</ref> Noted commentator Bill Bonner and others have described politicians, welfare recipients, bankers and other tax beneficiaries as economic "zombies" obsessed with preserving their own coercively acquired incomes and unable to adapt to new economic realities. He has predicted that the "zombies" will continue to "steal" as much as possible and parasitically live off the productive efforts of others until the whole monetary system collapses.<ref>[http://dailyreckoning.com/the-coincidental-rise-of-oil-and-the-monetary-base/ The Coincidental Rise of Oil and the Monetary Base], Bill Bonner</ref><ref>[http://dailyreckoning.com/california-the-greece-of-the-us-financial-crisis/ California: The Greece of the U.S.], Bill Bonner</ref><ref>[http://dailyreckoning.com/zombies-born-of-government-spending/ Zombies Born of Government Spending], Bill Bonner</ref><ref>[http://www.zerohedge.com/article/not-program-salvage-greek-economy-its-program-pillage-bankruptcy Pillage Before Bankrupcty], Washington's Blog</ref> Some commentators have criticized so-called "zombie" bureaucracies such as the TSA as not only deadweights on the real productive economy, costing millions of tax dollars each year; their very existence hinders economic productivity.<ref>[http://mises.org/daily/5611/TSA-and-Unproductive-Labor TSA and Unproductive Labor], James E. Miller</ref> It is alleged that once these organizations are created and fed by government fiat, these "zombies" never die because there is no natural market mechanism to provide the necessary feedback signalling that they are unwanted by consumers. They grow only because they survive through government bureaucratic support and largesse - which comes from coercively acquired tax dollars or central bank produced fiat money. It is argued that the richest parasitic "zombies" (such as the CEOs and shareholders of the private security firms servicing the TSA's multi-million dollar government contracts) will continue to suck as much wealth from the productive economy as possible and then move on to the next host country with their real wealth converted into land, precious metals and jewels and other real assets.

The difficulty with any attempt at reform measures is that the "Ponzi" elements of finance are inextricably tied to pension funds and "real" elements in the economy, making it impossible to eliminate the "cancer" without damaging the wealth-creating structures as well.<ref>The term "cancer" is specifically mentioned in [http://www.pytheas.net/docs/Laissez-faire-and-policymakers.pdf Laissez-faire, investment banks and policy makers], Pytheas Market Focus, August 2009</ref><ref>[http://www.telegraph.co.uk/finance/comment/jeffrandall/8436123/We-must-call-the-bluff-of-the-big-bad-banks.html We must call the bluff of the big banks], Jeff Randall</ref><ref name="Repudiating the National Debt"/><ref>[http://www.youtube.com/watch?v=1zMv4Offm_8&feature=player_embedded#at=1341 Max Keiser Interview with Alex Jones]</ref><ref>[http://www.buildfreedom.com/tl/rape3.shtml Economic Rape of America]</ref><ref>[http://www.youtube.com/watch?v=zbQq33iTsrw Rigged bank rates]</ref> Commentator Max Keiser has also referred to "zombie" bankers as "The Walking Dead"<ref>[http://www.youtube.com/watch?v=23_S5etzSP0 Resident Evil Zombie Banks!]</ref> and has coined the term "Suicide Banking" to describe the paradoxical situation where virtually every politician and economist acknowledges that "Too Big To Fail" is a dysfunctional policy but no one has a viable solution, given that the banking system is "rigged to blow" if threatened.<ref>[http://www.youtube.com/watch?v=PCRXz5oOQVY&feature=player_embedded Suicide Bankers], Max Keiser</ref> He also refers to the current crisis as a fight to the death not between countries or ethnic groups or political ideologies but between future-oriented, prudent and conservative "Savers" on one side and present-focused, imprudent and overconsuming "Speculators" on the other.<ref>[http://www.youtube.com/watch?v=jzzIqi2sbQY&feature=player_embedded US flashing Orange]</ref>

Many non-mainstream financial commentators believe the U.S. and the E.U. will soon experience terminal financial crises, but there is vigorous on-going debate amongst numerous commentators regarding whether this terminal currency crisis will end in hyperinflation and currency destruction (making government bonds worthless) or repeated bouts of deflation and depression (making government bonds more valuable).<ref name="Landis_Reprieve" /><ref>[http://www.marketoracle.co.uk/Article28148.html How to Keep a Damaged Financial and Economic System Afloat?], Bob Chapman</ref><ref>[http://news.goldseek.com/GoldSeek/1305306000.php Winning in the Hyperinflation/Deflation War], Deepcaster LLC</ref><ref>[http://www.marketoracle.co.uk/Article27733.html Compound Inflation], John Mauldin</ref><ref>[http://www.lewrockwell.com/north/north973.html Rick Ackerman Defects], Gary North</ref><ref>[http://globaleconomicanalysis.blogspot.com/2011/04/no-miracle-cures-from-inflation.html Impossible to Inflate Out of this Mess], MISH</ref><ref>[http://globaleconomicanalysis.blogspot.com/2009/06/big-inflationist-scare.html The Big Inflationist Scare], MISH</ref><ref>[http://globaleconomicanalysis.blogspot.com/2010/09/debating-flat-earth-society-about.html Debating the Flat Earth Society About Hyperinflation], MISH</ref><ref>[http://globaleconomicanalysis.blogspot.com/2009/01/peter-schiff-was-wrong.html Peter Schiff Was Wrong], MISH</ref><ref>[http://www.marketoracle.co.uk/Article27726.html Deflation Threat is Still Alive], EWI</ref><ref>[http://www.marketoracle.co.uk/Article27791.html Can We Give The Hyperinflation Thing a Rest?], Mike Whitney</ref> Most - but not all - Austrian commentators now believe the denouement will inevitably result in hyperinflation and render the U.S. dollar near-worthless in real terms, as U.S. bond and dollar holders compete to offload excess holdings in the face of massive ongoing issuance.<ref>[http://www.marketoracle.co.uk/Article29393.html US Dollar Supply and Demand], Jim Willie CB</ref><ref>[http://fofoa.blogspot.com/2011/04/deflation-or-hyperinflation.html Deflation or Hyperinflation?], FOFOA</ref><ref>[http://maxkeiser.com/2011/04/25/ding-ding-ding-its-all-over-rick-ackerman-concedes-hes-been-wrong-and-joins-the-hyperinflationist-camp/ It's all over! Rick Ackerman Concedes!], Max Keiser</ref> Mike Shedlock and Antal E. Fekete are amongst a small group of deflationists who believe contracting credit will continue to have a deflationary impact on the economy, causing government bonds to become even more valuable over time.<ref>[http://globaleconomicanalysis.blogspot.com/2011/05/hyperinflation-nonsense-in-multiple.html Hyperinflation Nonsense], MISH</ref><ref>[http://globaleconomicanalysis.blogspot.com/2011/04/no-miracle-cures-from-inflation.html No Miracle Cures from Inflation], MISH</ref><ref>[http://www.julianmidwinter.com.au/ The Federal Reserve as an engine of deflation], Antal E. Fekete</ref><ref>[http://globaleconomicanalysis.blogspot.com.au/2012/08/preposterous-falsehoods-from-gary-north.html Falsehoods from Gary North], MISH</ref>

It should be noted that few hyperinflationists can explain the ''precise mechanism'' by which massive amounts of new credit money will be injected into the economy. There has been no detailed explanation from the hyperinflationists regarding how, with so few potential credit-worthy borrowers (including governments), the new money (via the issuance of new debt) will be injected into the economy in sufficient volume to trigger hyperinflation in the absence of extreme government policies (such Congress authorizing every citizen to be issued with $30,000 vouchers, or a civil war, or other natural catastrophe).<ref>[http://globaleconomicanalysis.blogspot.com/2011/09/bernankes-waterloo-midst-of.html Bernanke's Waterloo], Mike Shedlock</ref>

Gary North is one of the few Austrians who does not predict the extremes of either hyperinflation or deflationary depression, but rather expects a continuation of steady, moderate price inflation encouraged and controlled by the Federal Reserve, against a background of ongoing extreme boom-busts in the real economy and the slow but systemic impoverishment of the middle class.<ref>[http://lewrockwell.com/north/north1031.html Mass Inflation, Yes; Hyperinflation, No], Gary North</ref>

Austrian commentator Robert K. Landis believes there will be a combined deflationary/inflationary catastrophe.<ref>[http://www.goldensextant.com/SavingtheSystem.html Saving The System], Robert K. Landis</ref>

Leaving aside the debate between deflationists and hyperinflationists, and in stark contrast to the predictions of deflationary or hyperinflationary catastrophe from the Austrians, monetarist, Keynesian and neo-classical economists regard the current financial system as benign and the current financial distress as temporary and not structural in nature.<ref>[http://www.marketoracle.co.uk/Article35922.html Who do You Trust?], James Quinn</ref> Most advocate "tweaking" of government policy (such as temporary increases in government spending) to get us out of the current crisis. No mainstream economist identifies the problem as fundamental or structural and no mainstream economist advocates a return to full reserve banking, the gold standard or free banking. Indeed, most financial analysts still use the normal distribution - or "Bell Curve" - to represent the likely distribution of future returns in financial markets.<ref>[http://seekingalpha.com/article/163271-rethinking-alpha-and-beta Rethinking Alpha and Beta], Paul Amery</ref> This continues despite extensive research demonstrating that the normal distribution does not apply to financial market returns, which display so-called "fat tail" distributions, with much more volatlity at the extremes than the normal distribution would predict.<ref>[http://www.bearcave.com/bookrev/misbehavior_of_markets.html The Misbehavior of Markets], Ian Kaplan</ref> The Austrian view - that the economy will either slide into depression or hyperinflation under the stresses of the current debt-based monetary monetary system - may be supported by more recent analysis of actual financial market behavior under conditions of high debt and extreme stress.<ref>[http://mises.org/daily/5352/What-Mises-Can-Teach-the-Quants What Mises Can Teach the Quants], Daniel James Sanchez</ref><ref>[http://lewrockwell.com/north/north990.html The Next Financial Crisis], Gary North</ref><ref>[http://www.debtdeflation.com/blogs/2011/06/11/dude-where%E2%80%99s-my-recovery/ Where's My Recovery?], Steve Keen</ref> And recently even mainstream economists, such as senior IMF advisor Dr Robert Shapiro, now openly acknowledge that the inter-dependencies created by the issuance of Credit Default Swaps and other risk-related financial products by reckless under-capitalized banks has created a situation of extreme global financial vulnerability, where the world is only weeks away from a complete and total financial "meltdown".<ref>[http://maxkeiser.com/2011/10/07/imf-advisor-says-we-face-a-worldwide-banking-meltdown/ IMF Advisor Says We Face a Worldwide Banking Meltdown], BBC. Quote, Dr Robert Shapiro: "If they (EU governments) cannot address this in a credible way, I believe that in perhaps two to three weeks we will have a meltdown in sovereign debt which will produce a meltdown across the European banking system - we're not just talking about a relatively small Belgian bank - we're talking about the largest banks in the world - the largest banks in Germany, the largest banks in France - that will spread. It will spread to the United Kingdom - in part through sovereign debt problems in Ireland - it will spread ''everywhere'' because the global financial system is so inter-connected they are each counter...''all'' those banks are counter-parties to every significant bank in the United States and in Britain and in Japan and around the world! This would be a crisis that would be, in my view, more serious than the crisis in 2008."</ref> John Butler of Amphora has observed that "business cycles" have become "financial cycles" with central bank manipulation of markets, and these cycles have become increasingly violent and unstable, with shorter durations and increasing frequency.<ref>[http://maxkeiser.com/2013/05/16/kr445-keiser-report-sacred-dow/ Sacred Dow]</ref> To him, this signals the dying stages of a failed system, much like a spinning top slowing down and oscillating more frequently and more violently from side to side before coming to a sudden stop. According to John Butler, increases in stock prices are not a sign the economy is recovering, but is a sign of central bank-induced inflation - the first stages of currency collapse.<ref>[http://maxkeiser.com/2013/05/16/kr445-keiser-report-sacred-dow/ Sacred Dow]</ref>

Regardless whether the government chooses hyperinflation or periodic deflationary depression as the way out, throughout history, only two real alternatives occur in the midst of economic or financial crisis: ever greater centralization (often on a "higher level") or disintegration of the core power structures and (eventually) rejuvenation.<ref>[http://www.telegraph.co.uk/comment/columnists/janetdaley/8770696/The-European-dream-lies-in-ruins.html The European dream lies in ruins], Janet Daley, UK Telegraph</ref><ref>[http://www.zerohedge.com/article/greeces-ultimatum-bailout-bankers-or-loss-sovereignty Greece's Ultimatum], ZeroHedge</ref><ref>[http://www.lewrockwell.com/north/north966.html Wealth Through Decentralization], Gary North</ref><ref>[http://mises.org/store/Rollback-P10449.aspx ''Rollback''], Thomas Woods</ref><ref>[http://blog.mises.org/9321/crisis-and-leviathan/ Crisis and Leviathan], Robert Higgs</ref><ref>[http://mises.org/store/Money-Bank-Credit-and-Economic-Cycles-P290C0.aspx Money, Bank Credit and Economic Cycles], Jesus Huerta de Soto, Mises Institute ISBN: 978-1-933550-39-8</ref><ref>[http://mises.org/store/Meltdown-P557.aspx ''Meltdown''], Tom Woods, Regnery Press ISBN: 9781596985872</ref><ref>[http://mises.org/media/4014 The Economics of Legal Tender Laws], [[Jorg Guido Hulsmann]] (includes detailed commentary on centralization during crises)</ref><ref>[http://www.amazon.com/Warwolves-Iron-Cross-International-Relationships/dp/146358380X/ref=sr_1_33?ie=UTF8&qid=1316347713&sr=8-33 Warwolves of the Iron Cross], Veronica Kuzniar Clark</ref> Accordingly, many of the more extreme monetary reformers and [[conspiracy theorists]] anticipate repeated and ever more desperate attempts at ''higher-order centralization'',<ref>[http://www.telegraph.co.uk/comment/columnists/janetdaley/8770696/The-European-dream-lies-in-ruins.html The European dream lies in ruins], Janet Daley, UK Telegraph</ref><ref>[http://www.marketoracle.co.uk/Article27051.html A New World Currency?], Ellen Hodgson Brown</ref> as the existing co-ordinated state-based central bank architecture becomes discredited through repeated economic failure and environmental crises caused by the need for unsustainable exponential debt-driven economic "growth" within the current debt-based financial architecture.<ref>[http://www.zerohedge.com/article/guest-post-economic-abyss The Economic Abyss], Brandon Smith</ref> This centralization is anticipated to include the empowerment of the UN to increasingly intervene in the domestic political affairs of nations,<ref>[http://www.lewrockwell.com/rozeff/rozeff343.html World Government], Mike Rozeff</ref> the IMF and EU to increasingly intervene in the domestic financial affairs of member nations,<ref>[http://www.telegraph.co.uk/comment/columnists/janetdaley/8770696/The-European-dream-lies-in-ruins.html The European dream lies in ruins], Janet Daley, UK Telegraph</ref><ref>[http://www.zerohedge.com/article/greeces-ultimatum-bailout-bankers-or-loss-sovereignty Greece's Ultimatum], ZeroHedge</ref><ref>[http://globaleconomicanalysis.blogspot.com/2010/11/terms-of-enslavement-irish-citizens-say.html Terms of Enslavement], MISH</ref><ref>[http://globaleconomicanalysis.blogspot.com/2010/11/imf-ready-to-help-ireland-can-imf-help.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+MishsGlobalEconomicTrendAnalysis+%28Mish%27s+Global+Economic+Trend+Analysis%29 Can the IMF help anyone?], MISH</ref><ref>[http://www.telegraph.co.uk/finance/financialcrisis/8150137/Ireland-forced-to-take-EU-and-IMF-bail-out-package.html Ireland forced to take IMF bailout package], Telegraph</ref> and the declaration of [[martial law]] and the imposition of [[fascist]]-style restrictions on [[civil rights]]<ref>[http://www.zerohedge.com/article/guest-post-us-monetary-system-and-descent-fascism-interview-dr-edwin-vieira The U.S. Monetary System and Descent Into Fascism], Dr Edwin Vieir</ref><ref>[http://english.aljazeera.net/indepth/opinion/2011/04/201142612714539672.html Global capitalism and 21st cenury fascism], William I. Robinson</ref><ref>[http://www.lewrockwell.com/rep2/jesse-ventura-on-tsa-abusers.html Jesse Ventura on the TSA' Sexual Abusers]</ref> and [[freedom of speech]] by the political [[The Establishment|Establishment]] to physically protect it from [[anarchy]] or military [[coup]] when the [[bubble (economics)|bubble]] of debt completely bursts, through a precipitous currency crisis, debt-created [[Depression (economics)|depression]], environmental crisis or oil shortage.<ref>[http://www.marketoracle.co.uk/Article26605.html Population Reduction], Chris Kitze</ref><ref>[http://jsmineset.com/2011/02/24/in-the-news-today-791/ Collapse]</ref><ref>[http://www.lewrockwell.com/lewrockwell-show/2010/12/14/179-the-espionage-act-and-the-death-of-american-freedoms/ Death of American Freedoms], Naomi Wolf, LRC interview, Dec 14, 2010</ref><ref>[http://www.house.gov/paul/congrec/congrec2007/cr120507h.htm New security legislation threats freedoms]</ref><ref>[http://www.marketoracle.co.uk/Article26325.html Bank Credit Ends in Catastrophe], Richard Daughty, The Mogambo Guru</ref> Ultimately this is anticipated to yield either repressive world government<ref>[http://www.zerohedge.com/news/2013-01-31/guest-post-linchpin-lie-how-global-collapse-will-be-sold-masses The Linchpin Lie]</ref> or chaos (or most likely both), with a world central bank stationed in Basel, Switzerland.<ref>[http://www.zerohedge.com/news/2013-05-03/monarchs-money Monarchs of Money]</ref><ref>[http://www.youtube.com/watch?v=VMngK0t5WkY Max Keiser]</ref><ref>[http://www.marketoracle.co.uk/Article28533.html The Global Debt Crisis], Ellen Hodgson Brown</ref><ref>[http://www.marketoracle.co.uk/Article27051.html A New World Currency?], Ellen Hodgson Brown</ref><ref>[http://www.marketoracle.co.uk/Article27554.html Libya War All About Oil or Gold and Banking?], Ellen Hodgson Brown</ref><ref>[http://blog.mises.org/9321/crisis-and-leviathan/ Crisis and Leviathan], Robert Higgs</ref> During this transition period, some analysts and conspiracy theorists anticipate multiple wars to force governments into the BIS financial "net",<ref>[http://www.youtube.com/watch?v=VMngK0t5WkY Max Keiser]</ref><ref>[http://www.marketoracle.co.uk/Article28533.html The Global Debt Crisis], Ellen Hodgson Brown</ref><ref>[http://www.marketoracle.co.uk/Article27051.html A New World Currency?], Ellen Hodgson Brown</ref><ref>[http://www.marketoracle.co.uk/Article27554.html Libya Ware All About Oil or Gold and Banking?], Ellen Hodgson Brown</ref> impotent and counterproductive price controls,<ref>[http://globaleconomicanalysis.blogspot.com/2011/03/food-prices-rise-11-in-china-overall.html Chinese inflation], MISH</ref><ref>[http://www.lewrockwell.com/goyette/goyette18.1.html Too Late!], Charles Goyette</ref> repeated sell-offs of monopoly state assets in a desperate attempt to feed private domestic banks with steady, coercively acquired income to keep the value of government bonds collapsing,<ref>[http://globaleconomicanalysis.blogspot.com/2011/05/whos-bigger-socialist-president-obama.html Who's the Bigger Socialist?], MISH</ref> and then, once this attempt (to feed unsustainable compounding debt with any remaining basic infrastructure) destroys any remaining parts of the productive economy, there will be in the end coercively enforced rationing of basic essentials to ensure continued supply of food and oil to senior government officials, bankers and their associates amidst widespread general starvation and chaos,<ref>[http://www.technologyreview.com/blog/arxiv/27083/?p1=blogs Food prices and Riots]</ref><ref>[http://www.marketoracle.co.uk/Article26605.html Population Reduction], Chris Kitze</ref> as the coalescence of a corrupt banker-government coalition solidifies<ref>[http://www.zerohedge.com/news/2013-01-31/guest-post-linchpin-lie-how-global-collapse-will-be-sold-masses The Linchpin Lie]</ref><ref>[http://maxkeiser.com/2011/04/28/kr142-keiser-report-blind-cult-of-america/ Blind Cult of America]. Quote: Max Keiser: "Yes, it's beyond religious fervor. That's the point. It's become this echo chamber, cult-like 'America can't fail' which is very endemic when you see suicide cults. Remember Jim Jones. Remember him. The Kool Aid. He made the idea of drinking Kool Aid... he popularized that notion. Everyone committed suicide in Guyana. Or the Hail-Bot Comet Cult. Here you've got 300 million Americans who are worshiping this idea of 'American-style' Free Market Capitalism that doesn't exist. They support market manipulation on Wall Street and they're all gonna ''die'' as a result. Now that's less than 5% of the world's population. It is 25% of the world's garbage so the world will breathe a sigh of relief, but, as far as those living inside they don't really understand that they're being used as cult fodder." Stacy Herbert: "The equivalent of drinking the cyanide-laced Kool Aid would be purchasing a McMansion with a sub-prime mortgage. This is them committing suicide. It's the equivalent of drinking cyanide-laced Kool Aid." Max Keiser: "It's financial suicide. As we've talked about. Financialization of the economy has turned into this hybrid reality that combines political malfeasance with financial larceny and that's the combination between Obama's White House and Wall Street merging together into something even more insidious than fascism. It's a Klepto-F*@kingSh*tism. It's a... it's a Klepto-Sh*tism is the current political-financial school of thought in America today and it's not working. It's unsustainable."</ref> to eliminate potential dissent and ensure the forced elimination - by any means necessary - of any actual or potential competing [[currencies]] that could threaten the viability or legitimacy of the [[monopoly]] currency, which could include war against any country considering using any currency other than US dollars to price essential commodities such as oil <ref>[http://www.lewrockwell.com/holland/holland44.1.html Anglo-American Deception], Ron Holland</ref> and the compulsory confiscation of all privately-owned [[gold]] (gold being the ultimate reserve currency, still used by central banks as a universally accepted medium of exchange for the settlement of international debts).<ref>[http://mises.org/daily/5184/The-Crime-of-Private-Money The "Crime" of Private Money], Robert Murphy</ref><ref>[http://www.zerohedge.com/article/guest-post-thoughts-liberty-dollar-debacle Liberty Dollar], ZeroHedge.com</ref><ref>[http://blog.mises.org/14795/the-gold-clause-cases-and-constitutional-necessity/ Gold Clause Cases]</ref><ref>[http://news.goldseek.com/GoldSeek/1196605589.php America's Trade Debts Lead to a Likely Gold Confiscation]</ref><ref>[http://www.libertydollar.org/ld/legal/raid.htm FBI Raids Liberty Dollar]</ref><ref>[http://www.lewrockwell.com/rothbard/solution.html The Solution]</ref><ref>[http://prudentinvestor.blogspot.com/2007/09/us-mint-suspends-gold-coin-sales-due-to.html US Mint Suspends Gold Coin Sales]</ref><ref>[http://www.swissamerica.com/article.php?art=06-2004/200406140537f.txt Why a Gold Standard Now?]</ref><ref>[http://www.lewrockwell.com/blog/lewrw/archives/73468.html Bank of America an arm of US government policy]</ref><ref>[http://www.marketoracle.co.uk/Article26325.html Bank Credit Ends in Catastrophe], Richard Daughty, The Mogambo Guru</ref><ref>[http://www.sovereignman.com/expat/bernanke-terrorist Bernanke is the domestic terrorist], Sovereign Man</ref><ref>[http://www.marketoracle.co.uk/Article28225.html DSK Was Trying to Torpedo the Dollar], Mike Whitney</ref>

Some have speculated that the overthrow and attempted assassination of Col. Gaddafi and his family in 2011 Libyan "civil war" was triggered by Col. Gaddafi's open (and unwise) attempt to price Libya's oil in gold, which is the reaction many would expect for a country that "dared" to price an essential commodity in anything other than a Western paper currency.<ref>[http://www.youtube.com/watch?v=GuqZfaj34nc&feature=player_embedded#! Gaddafi: Gold for Oil?], RTTV</ref><ref>[http://www.youtube.com/watch?v=8lnslMWhOTw&list=SPC3F29DDAA1BABFCF&index=194 Welcome Home German Gold], Max Keiser</ref>

There have been many [[financial crisis|monetary crises]] throughout history.<ref>[http://www.zerohedge.com/news/2013-02-26/trust-me-time-different Trust Me This Time Is Different]</ref><ref>[http://www.delanion.com/main/dom.htm Fiat Money Inflation in France], Gold Money video featuring Max Keiser, James Turk and Pierre Jovanovic</ref><ref>[http://www.delanion.com/main/dom.htm Dying of Money], Jens O. Parsson</ref><ref>[http://www.delanion.com/main/dom.htm Dying of Money], Jens O. Parsson</ref><ref name="Bonner_Swan">[http://www.lewrockwell.com/bonner/bonner454.html Revolution in Egypt and Black Swans], Bill Bonner, February 15, 2011.</ref><ref>[http://news.goldseek.com/GoldSeek/1297199137.php China Inflation and Gold], Darryl Robert Schoon</ref><ref>[http://mises.org/store/Early-Speculative-Bubbles-P578.aspx Early Speculative Bubbles and Increases in the Money Supply], Doug French, Mises Institute ISBN: 978-1-933550-44-2</ref><ref>[http://dailyreckoning.com/a-word-of-advice-to-financial-authorities/ Advice to Financial Authorities], Bill Bonner</ref><ref>[http://www.marketoracle.co.uk/Article26325.html Bank Credit Ends in Catastrophe], Richard Daughty, The Mogambo Guru</ref> Some commentators have noted that our present system and the strategies attempted by governments to reflate the economy closely resemble the failed theories of John Law and the Mississippi bubble of the early 18th century.<ref>[http://www.economist.com/node/14215012 Law of easy money], ''The Economist''</ref> There are a number of standard warning signs of impending depression or hyperinflation caused by a complete breakdown of trust in any [[monetary system]].<ref>[http://mises.org/store/Product.aspx?ProductId=435 Fiat Money Inflation in France], Andrew Dickson White, Mises Institute</ref><ref>[http://www.marketoracle.co.uk/Article25313.html Asset Speculation and Capital Destruction], Jim Willie</ref><ref>[http://www.zerohedge.com/article/guest-post-economic-abyss The Economic Abyss], Brandon Smith</ref><ref>[http://lewrockwell.com/orig12/martenson8.1.1.html Argentina: A Case Study], Chris Martenson and FerFAL</ref> Just prior to the complete collapse of the [[pyramid scheme]] of public and private debt, the economic system tends to feed on itself, and in the past, where debt-created [[Depression (economics)|depression]]s or periods of [[hyperinflation]] have occurred in [[Europe]],<ref name="Bonner_Swan" /> the [[U.S.]] and [[China]], there has been a sustained spike in predatory economic behavior, as the heavily indebted central government and producers are forced to find more extreme (previously considered unethical) methods to extract any remaining wealth from increasingly desperate and impoverished [[consumers]], who are either unwilling or unable to go into further debt without forceful coercion.<ref>[http://www.zerohedge.com/article/guest-post-ethics-mortgage-loan-default The Ethics of Mortgage Loan Default], Greg Lemelson</ref><ref name="Bonner_Swan" /><ref name="http">{{cite book |last= Widdig |first= Bernd |title= Culture and Inflation in Weimar Germany |url= http://books.google.com/books/ucpress?id=kvKAATycUzIC |accessdate= 2007-12-16 |year= 2001 |publisher= University of California
Press |isbn= 0520222903 }}</ref><ref>[http://mises.org/daily/3569 John Law and the Invention of Modern Finance], Doug French (Mises.org)</ref><ref>[http://mises.org/daily/1690 The Saga of John Law and Richard Cantillon], Sean Corrigan (Mises.org)</ref> [[Long-term]] investment and sustained [[capital investment]] are almost impossible in this environment because the "measuring stick" of [[return on investment]] (the real value of [[money]]) is so uncertain at times of debt-induced [[credit crunch]], depression or hyperinflation.<ref>[http://www.marketoracle.co.uk/Article25313.html Asset Speculation and Capital Destruction], Jim Willie</ref>

As potential new [[borrower]]s and international financiers are scared away from participating in the [[pyramid scheme]] of debt and borrowing further, the [[monetary system]] seizes up, starved of the fresh injections of [[debt money]] it needs for its survival, thereby precipitating economic [[anarchy]],<ref name="Bonner_Swan" /><ref>[http://www.zerohedge.com/article/guest-post-economic-abyss The Economic Abyss], Brandon Smith</ref> widespread [[lawlessness]]<ref name="Bonner_Swan" /> and [[insolvency]] of the monetary and banking system.<ref>[http://www.youtube.com/watch?v=FPxYg6mgGpE Inflation is There], Peter Schiff</ref><ref>[http://www.oftwominds.com/blognov07/empire-debt1.html Empire of Debt]</ref><ref name="Landis_Reprieve" /><ref>[http://www.marketoracle.co.uk/Article25313.html Asset Speculation and Capital Destruction], Jim Willie</ref><ref name="Bonner_Swan" /> Some have described the moment when governments cannot borrow any more from banks to keep up the growth in debt money as the "Keynesian Endpoint" or "Keynesian Endgame" or point of "Debt Saturation" - which is the point in time when ''in extremis ''"emergency" measures by the government to kick-start the economy by increasing total gross debt have no lasting positive effect on GDP.<ref>[http://www.zerohedge.com/article/guest-post-economic-death-spiral-has-been-triggered The Economic Death Spiral], Gordon T. Long</ref><ref>[http://www.zerohedge.com/article/charting-ten-year-prelude-keynesian-endgame Keynesian Endgame], ZeroHedge</ref><ref>[http://en.wikipedia.org/wiki/Keynesian_endpoint Keynesian Endpoint], Wikipedia definition</ref><ref>[http://www.marketoracle.co.uk/Article27801.html U.S. Debt Saturation and Money Illusion], Gordon T. Long</ref> Antal E. Fekete identifies this "crisis" point as the point when the marginal increase in total gross debt has no positive marginal effect on GDP.<ref>[http://www.professorfekete.com/articles/AEFGotterdammerung.pdf Gotterdammerung], Antal E. Fekete</ref> According to Professor Fekete, once the marginal productivity of debt turns negative, a disastrous depression is inevitable.<ref>[http://www.professorfekete.com/articles/AEFGotterdammerung.pdf Gotterdammerung], Antal E. Fekete</ref>

Recent studies have indicated that debt turns toxic at between 80 and 100 percent of GDP. Beyond this, further increases in debt reduce GDP rather than stimulate it.<ref>[http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100011744/when-debt-levels-turn-cancerous/ When Debt Levels Turn Cancerous], Ambrose Evans-Pritchard</ref>

This final denouement is triggered when [[borrower]]s cannot be found to buy depreciating, already-indebted, assets, and international financiers reduce lending as they experience losses on pre-existing loans either through asset or currency [[depreciation]].<ref>[http://www.youtube.com/watch?v=FPxYg6mgGpE Inflation is There], Peter Schiff</ref> Some analysts predict that the [[monetary system]] will seize up due to a [[deflationary]] depression<ref>[http://www.zerohedge.com/article/guest-post-heres-setup-con-decade The Con of the Decade], ZeroHedge</ref> or a sustained period of [[stagflation]]ary hyperinflation resulting in a "final and total catastrophe of our fiat monetary system."<ref name="Landis_Reprieve" /><ref>[http://www.marketoracle.co.uk/Article25313.html Asset Speculation and Capital Destruction], Jim Willie</ref><ref>[http://www.youtube.com/watch?v=FPxYg6mgGpE Inflation is There], Peter Schiff</ref><ref>[http://www.marketoracle.co.uk/Article27402.html Deflationists Blind to Inflationary Storm], Jim Willie</ref><ref>[http://www.marketoracle.co.uk/Article27466.html Compounding Debt]</ref>

Examples of debt and monetary crises can often be found after failed wars, when international financiers realize the heavily indebted [[government]] they funded will not gain the resources it planned to seize as a result of the waging of aggressive war. When this pay-off does not materialize, the losing government is left with the debt of war without the ability to offset this government debt through the imposition of reparations on the defeated nation and the acquisition of the defeated state's resources, thereby boosting the victorious state's GDP and tax revenues. This sudden monetary collapse occurred to [[Germany]] after the [[First World War]] and [[Japan]] after the [[Second World War]].

Whatever the trigger, the key warning sign of any impending monetary crisis and economic [[anarchy]] is a sudden [[currency crisis]], or a sudden spike in domestic interest rates, or a sudden [[credit crunch]] or the announcement of a bank holiday.<ref>[http://mises.org/daily/6400/Lessons-from-Cyprus Lessons from Cyprus]</ref><ref name="Landis_Reprieve" /> Early warning signs that the [[private banks]] themselves are aware of an impending breakdown in the [[solvency]] of the [[financial system]] would be any combination of some or all the following: a spike in the [[oil]] price (which is an internationally accepted, inherently limited, store of value, and therefore can act as a modern form of [[hard currency]], oil sometimes being referred to as "black gold"), "backwardation" in [[gold]],<ref>[http://www.zerohedge.com/news/2013-02-22/gold-and-potential-dollar-endgame-part-3-backwardation-and-gold Gold and the Potential Dollar Endgame]</ref><ref>[http://www.minyanville.com/businessmarkets/articles/gold-spot-price-gold-prices-gold/5/10/2011/id/34441?camp=syndication&medium=portals&from=yahoo Permanent Gold Backwardation: Why a "Crack Up Boom" Is Inevitable], Keith Weiner</ref> and [[silver]]<ref>[http://www.youtube.com/watch?v=021yEhjPDa0&feature=player_embedded#at=826 $400 Ounce Silver, $8000 Ounce Gold], James Turk</ref><ref>[http://www.youtube.com/watch?v=FPxYg6mgGpE Inflation is There], Peter Schiff</ref> and sudden price spikes in other stable, non-perishable, inherently limited [[natural resources]] essential for non-discretionary industrial production;<ref>[http://www.marketoracle.co.uk/Article25313.html Asset Speculation and Capital Destruction], Jim Willie</ref> a spike in the [[futures contract]]s for vital agricultural [[commodities]]<ref>[http://www.marketwatch.com/story/fed-dictator-bernanke-needs-to-be-toppled-2011-02-15 Fed dictator Bernanke needs to be toppled], Paul B. Farrell</ref><ref>January 27, 2011 – ''Financial Times'' (Javier Blas and Chris Giles): “Governments across the developing world are stockpiling food staples in an attempt to contain panic buying, inflation and social unrest. But the hoarding is driving agricultural commodity prices even higher. The cost of wheat, the world’s most important staple, reached a fresh two-and-a-half-year high on Thursday, after countries from Algeria to Saudi Arabia announced extraordinary purchases. High food prices have been a contributing factor to the recent wave of social unrest across North Africa and the Middle East. In Algeria earlier this month, young rioters chanted ‘Bring us sugar!’ The cost of the sweetener in the wholesale market is at its highest in 30 years. Earlier this week, Algeria bought 800,000 tonnes of wheat – much more than usual – and Saudi Arabia announced plans to double the size of its wheat stockpile. Bangladesh and Indonesia joined the rush on Thursday, placing extraordinary on rice orders.”</ref> such as [[sugar]],<ref>[http://www.bloomberg.com/news/2010-12-15/portugal-tries-to-prevent-sugar-hoarding-amid-shortage-ft-says.html 2010 Portugal Sugar Crisis]</ref> [[corn]], [[wheat]], [[soybean]]s and [[rice]], as investors realize the debt-based monetary system has squeezed supplies of [[arable land]];<ref>[http://webofdebt.wordpress.com/2011/02/03/the-egyptian-tinderbox-how-banks-and-investors-are-starving-the-third-world/#more-1052 Banks and investors are starving the Third World], Ellen Hodgson Brown</ref><ref>[http://www.preparednesspro.com/blog/food-shortage-series-part-1/ Food Shortage Series],Kellene Bishop</ref><ref>[http://www.smh.com.au/environment/world-hungers-for-more-food-20110402-1csbh.html World hungers for more food], Sydney Morning Herald,</ref> a sudden flight of money ''to'' [[Treasury bills]] and/or a sudden spike in the [[interest rate]] differential between short-term [[Treasury bills]] and asset-backed corporate paper (or a sudden spike in the [[LIBOR]] rate in [[London]])<ref name="Landis_Reprieve" /><ref>[http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/12/03/cnrates103.xml&CMP=ILC-mostviewedbox Pleas for rate cut as interbank loans dive]</ref> - and then, in the very late stages of a credit crisis, a sudden and disorderly flight of money ''away from'' government bonds and a "shock" or "panic" collapse in government bond prices, as banks perceive that some governments will ultimately find it ''impossible'' to pay interest on their debt from coercively acquired taxes.<ref>[http://www.youtube.com/watch?v=SgNLTb58K_Y S&P Rating on US Sovereign Debt not Low Enough], Peter Schiff</ref><ref>[http://www.telegraph.co.uk/finance/economics/8190059/Global-bond-rout-deepens-on-US-fiscal-worries.html Global bond rout], Ambrose Evans-Pritchard, UK Telegraph</ref><ref>[http://www.prudentbear.com/index.php/thebearslairview?art_id=10480 When Will The U.S. Become Greece?], Michael Hutchinson</ref>

Shortly thereafter, some [[monetary reform]]ers predict that there would be desperate, but ultimately futile [[central bank]] intervention involving massive, repeated bouts of "quantitative easing",<ref>[http://www.zerohedge.com/article/did-fed-its-stealthy-synthetic-bet-keep-yields-low-become-next-aig Doubling Down], ZeroHedge</ref> then a [[currency crisis]],<ref>[http://www.zerohedge.com/article/jim-grant-inflation-there-will-be-lot-it-suddenly-because-our-interest-rate-structure-beyond Jim Grant on Inflation], ZeroHedge</ref> then a panic run on a number of marginal, [[insolvent]] [[banks]] and [[hedge funds]] as desperate wealthy investors try to get [[cash]] out before the [[pyramid scheme]]<ref>[http://www.youtube.com/watch?v=FPxYg6mgGpE Inflation is There], Peter Schiff</ref> collapses to invest in inherently limited, non-perishable, in-demand commodities such as [[oil]] and [[gold]]<ref>[http://www.professorfekete.com/articles/AEFAmericanBasesGermanyGoldBasis.pdf The Gold Basis], Antal E Fekete]</ref><ref>[http://www.zerohedge.com/article/golden-tipping-point-university-texas-takes-delivery-1-billion-physical-gold A Golden Tipping Point], ZeroHedge</ref><ref>[http://www.youtube.com/watch?v=FPxYg6mgGpE Inflation is There], Peter Schiff</ref><ref>[http://www.marketoracle.co.uk/Article25313.html Asset Speculation and Capital Destruction], Jim Willie</ref> (and undeveloped agricultural and industrial [[land]] in areas of the world with strong [[economic growth]]),<ref>[http://www.nytimes.com/2011/03/04/business/04farms.html?_r=1&hp Price of Farmland] NYTimes</ref> followed by a [[recession]] or [[depression]] in the broader heavily indebted economy as [[money supply|credit]] contracts but base money continues to rise exponentially.<ref>[http://www.marketoracle.co.uk/Article27172.html Why QE has NOT brought back inflation], EWI</ref><ref name="Landis_Reprieve" /><ref>[http://www.marketoracle.co.uk/Article25313.html Asset Speculation and Capital Destruction], Jim Willie</ref><ref>[http://www.newyorkfed.org/research/staff_reports/sr291.pdf Hedge Funds, Financial Intermediation and Systemic Risk]</ref><ref>[http://jsmineset.com/2011/02/24/in-the-news-today-791/ Collapse]</ref><ref>[http://www.marketoracle.co.uk/Article27596.html US Accelerating Inflation Mega-Trend], Nadeem Walayat</ref>

Historically, during periods of monetary disorder, a predator-prey mentality generally grips society, with parasitic or predatory activity being witnessed, eating away at the last vestiges of the middle class.<ref>[http://www.goldonomic.com/When%20Money%20Dies.pdf When Money Dies], Adam Fergusson</ref> In such circumstances the following activities continue to be profitable and proliferate during monetary disorder: international banking and financial services to the wealthy elite, to assist in secreting their assets outside the jurisdiction; drug trafficking and distribution to ease the psychological stress on those slipping down the social ladder into poverty and homelessness; security and protection services to the wealthy; entertainment services to the wealthy, including gambling, prostitution (male, female and child) and "exclusive" nightclubs and bars servicing the wealthy; luxury imported goods and services; military and defense contracting and procurement (as a form of high-level security services for elite government employees), propaganda and media services defending and glorifying and legitimizing the State; and all forms of coercive government activity generally (as the tendency towards fascist-style controls feeds on itself in a positive feedback loop around a triangle of increasing government employee numbers scared away from the shrinking private sector, a banking industry supporting government jobs and big business and defense contracting supporting and feeding both).<ref>[http://www.zerohedge.com/news/2013-05-22/greek-prostitution-soars-150-youth-unempoyment-hits-75-some-areas Greek Prostitution Soars By 150%]</ref><ref>[http://www.goldonomic.com/When%20Money%20Dies.pdf When Money Dies], Adam Fergusson</ref><ref>[http://books.google.com.au/books?id=kvKAATycUzIC&pg=PA197&lpg=PA197&dq=prostitution+modernism+weimar+germany+hyperinflation&source=bl&ots=DaJiHnllDu&sig=Acfme5660DBUC6Xw5XLdoke5IE4&hl=en&ei=fOB1Tor1BsXRmAWSoYn0DA&sa=X&oi=book_result&ct=result&resnum=5&ved=0CD4Q6AEwBDgK#v=onepage&q&f=false Culture and Inflation in Weimar Germany], Bernd Widdig</ref><ref>[http://www.businessinsider.com/finance-guy-in-london-explains-how-to-order-cocaine-from-a-restaurant-2011-9#ixzz1Y2MQUyzJ London Banker explains how to order cocaine from London restaurant]</ref><ref>[http://www.alternet.org/story/152446/inside_the_trillion-dollar_underground_economy_keeping_many_americans_%28barely%29_afloat_in_desperate_times?page=entire Inside the Underground Economy]</ref>

It should be noted that in 2011 banks started paying police directly, presumably to ensure protection from the public should widespread protests commence against their alleged [[embezzlement]] activities.<ref>[http://lewrockwell.com/wenzel/wenzel132.html Banksters Running Scared]</ref>

In 2010 Ireland and Greece experienced similar financial crises along the lines described above and many financial commentators and politicians expect more countries to go through the same debt crisis.<ref>[http://globaleconomicanalysis.blogspot.com/2010/12/video-fire-bombs-stones-fly-in-greek.html Greek protests]</ref><ref>[http://www.youtube.com/watch?v=2gm9q8uabTs "Who the Hell do you think you people are?"], Nigel Farage, UKIP leader</ref><ref>[http://www.marketoracle.co.uk/Article25313.html Asset Speculation and Capital Destruction], Jim Willie</ref> In 2011, Tunisia experienced a financial and political crisis that was almost identical to those already experienced on the poorer European periphery, except that in this case the pre-existing political establishment quickly fled the country in fear for their safety - with some allegations that the wife of the deposed leader, Leila Trabelsi, ordered the country's central bank to transfer 1.5 tonnes of [[gold]] to Zine El Abidine Ben Ali and his family.<ref>[http://www.marketoracle.co.uk/Article25636.html We are all Tunisians], Yvonne Ridley</ref><ref>[http://www.heraldsun.com.au/news/breaking-news/tunisia-missing-15-tonnes-of-gold/story-e6frf7jx-1225992107457 Tunisia missing 1.5 tonnes of gold], Herald Sun</ref> The Egyptian uprising resulted in Hosni Mubarek fleeing after desperate attempts were made by him and his associates to preserve his family's wealth and power.<ref>[http://news.yahoo.com/s/ap/20110212/ap_on_re_mi_ea/ml_egypt_mubarak_s_final_hours Mubarak's final hours], Associated Press</ref> Several newspapers have reported that, once again, appropriating the nation's gold reserves was a major priority for the fallen leader.<ref>[http://www.smh.com.au/world/mubaraks-lastminute-rush-to-hide-his-billions-20110213-1as1c.html Mubarak's Rush to Hide Billions], SMH</ref> Following the overthrow of the ruling elites in Tunisia and Egypt, other North African countries have experienced similar uprisings - all attributable to higher food prices, according to some noted commentators,<ref>[http://www.telegraph.co.uk/finance/economics/8492078/How-the-Fed-triggered-the-Arab-Spring-uprisings-in-two-easy-graphs.html How the Fed triggered the Arab Spring uprisings], Andrew Lilico</ref> who have accused Fed Chairman Ben Bernanke of literally having "blood on his hands" due to the encouragement of food price inflation via sustained inflationary loose-monetary policies.<ref>[http://globaleconomicanalysis.blogspot.com/2011/01/blood-on-bernankes-hands-riots-in-egypt.html Blood on Bernanke's Hands], MISH</ref><ref>[http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2011/4/6_Marc_Faber_-_Mr._Bernanke_is_a_Murderer_of_the_Middle_Class.html Marc Faber calls Mr Bernanke a Murderer of the Middle Class], King World News</ref><ref>[http://www.youtube.com/watch?v=V3NdUU1wWa4&feature=player_embedded#at=89 Max Keiser - Bernanke is a Murderer]</ref><ref>[http://dailyreckoning.com/lessons-from-egypt-for-the-american-people/ Lessons from Egypt], Charles Kadlec</ref><ref>[http://www.marketwatch.com/story/fed-dictator-bernanke-needs-to-be-toppled-2011-02-15 Fed dictator Bernanke needs to be toppled], Paul B. Farrell</ref><ref>[http://mises.org/daily/5050/QE2-Fuels-a-Global-Fury QE2 Fuels a Global Fury], Mark Thornton</ref><ref>[http://www.zerohedge.com/article/bernanke-blame-rising-global-revolutionary-wave?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+zerohedge%2Ffeed+%28zero+hedge+-+on+a+long+enough+timeline%2C+the+survival+rate+for+everyone+drops+to+zero%29 Is Bernanke To Blame?], Tyler Durden, ZeroHedge</ref> The central banker has denied that his inflationary loose-monetary policies have contributed to food inflation and Chicago Fed President Charles Evans has called for ''even more'' quantitative easing and inflation as a way out of the on-going crisis, despite previous attempts having failed to stimulate the economy.<ref>[http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/8302111/Fed-chief-Ben-Bernanke-denies-US-policy-behind-record-global-food-prices.html Ben Bernanke Denies US Policy Behind Food Price Inflation], UK Telegraph, 3 February 2011</ref><ref>[http://www.zerohedge.com/news/evans-goes-full-qetard-tells-hilsenrath-fed-needs-do-much-more-easing Chuckie Evans Goes Full QEtard]</ref> Implicit in Mr Bernanke's and Mr Evan's argument is the assumption that the central bank can create "good" inflation in some markets and avoid "bad" inflation in others. This alleged central bank power to direct good inflation and abate bad inflation is derided by a number of commentators.<ref>[http://www.youtube.com/watch?v=V3NdUU1wWa4&feature=player_embedded#at=89 Max Keiser - Bernanke is a Murderer]</ref><ref>[http://globaleconomicanalysis.blogspot.com/2011/01/blood-on-bernankes-hands-riots-in-egypt.html Blood on Bernanke's Hands], MISH</ref><ref>[http://dailyreckoning.com/lessons-from-egypt-for-the-american-people/ Lessons from Egypt], Charles Kadlec</ref><ref>[http://www.marketwatch.com/story/fed-dictator-bernanke-needs-to-be-toppled-2011-02-15 Fed dictator Bernanke needs to be toppled], Paul B. Farrell</ref><ref>[http://www.zerohedge.com/article/bernanke-blame-rising-global-revolutionary-wave?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+zerohedge%2Ffeed+%28zero+hedge+-+on+a+long+enough+timeline%2C+the+survival+rate+for+everyone+drops+to+zero%29 Is Bernanke To Blame?], Tyler Durden, ZeroHedge</ref><ref>[http://www.marketoracle.co.uk/Article28587.html QE2 Unmitigated Failure], James Quinn</ref><ref>[http://www.marketoracle.co.uk/Article28998.html The Great Misdiagnosis], Jim Willie CB</ref>

Noted British ''Telegraph'' commentator Ambrose Evans-Pritchard has called these the first Malthusian "Food Revolutions" of the modern era, as "agflation" causes political instability on the periphery of major economies worldwide - particularly those countries that have already denuded their agricultural base and have to import grain and other foods to survive.<ref>[http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/8291470/Egypt-and-Tunisia-usher-in-the-new-era-of-global-food-revolutions.html A New Era of Food Revolutions], Ambrose Evans-Pritchard</ref><ref>[http://jsmineset.com/2011/02/24/in-the-news-today-791/ Collapse]</ref>

It is also reported that very complex, delicate negotiations are taking place between debtor and creditor nations to swap government bonds with gold at prices far in excess of the declared "market price" of gold.<ref>[http://www.marketoracle.co.uk/Article25878.html China Buys European Gold], Jim Willie</ref> These so-called "off-market" deals - and possible diversions of government-owned gold to corrupt bankers and political leaders - are signs the Keynesian Endpoint has arrived and the politicians and bankers recognize they have lost control of the economic system and must focus on saving themselves.<ref>[http://lewrockwell.com/wenzel/wenzel113.html Fort Knox Gold], Robert Wenzel</ref><ref>[http://www.marketoracle.co.uk/Article25878.html China Buys European Gold], Jim Willie</ref> Max Keiser reports that it appears powerful nations will negotiate repatriation of their gold and smaller nations will either have to accept their gold is lost or face war if they attempt to repatriate their own gold home.<ref>[http://www.youtube.com/watch?v=8lnslMWhOTw&list=SPC3F29DDAA1BABFCF&index=194 Welcome Home German Gold], Max Keiser</ref> Germany and other countries have started to slowly repatriate their gold in anticipation that gold may not be available at any price in future.<ref>[http://www.lewrockwell.com/spl5/fed-short-germanys-gold.html What if the Fed is Short Germany's Gold?]</ref><ref>[http://lewrockwell.com/thomas-jeff/thomas-jeff16.1.html The Disappearing Gold]</ref>

Finally, it should be noted that, with the collapse of Tsarist Russia, the establishment of the fifth and final central bank of the United States, the destruction of the fiat-issuing fascist regimes in Italy, Germany and Japan post-WWII, and the collapse of communism in the 1990s, there no longer exists any major economy where the banking system is fully government-owned or has any strictly enforceable social responsibilities beyond pure profit motive. All major world economies have now adopted essentially the same monetary system, with profit-driven private banks (government-licensed institutions legally permitted to engage in unlimited credit creation) able to pocket profits during upswings and socialize losses during downswings by use of central bank asset swaps. If critics are correct that all such systems are doomed to severe boom-bust cycles because of excessive expansion of speculative credit and endemic [[moral hazard]], it is to be expected that all major economies will also experience essentially the same kind of environmental and food crises, and even allegedly "strong" economies such as China will experience severe economic downturns at some stage.<ref>[http://mises.org/daily/5070/Bust-Looms-As-China-Booms Bust Looms], Markus Bergstrom</ref><ref>[http://globaleconomicanalysis.blogspot.com/2011/03/bloodstained-property-map-and-trampled.html Bloodstained Property Map], MISH</ref> However, equally, if critics are correct that fractional reserve banking, excessive credit expansion and artificially low interest rates are at the root of all financial crises, then higher reserve ratios and capital requirements for domestic banks (or the existence of heavily controlled nationalized banks) should reduce the severity of economic crises in those economies with higher reserve requirements for their own banks.<ref>[http://www.bloomberg.com/news/2011-02-18/china-increases-banks-reserve-ratio-for-second-time-to-curb-property-boom.html China increases bank reserves to curb inflation], Bloomberg</ref><ref>[http://video.ft.com/ Lex's John Authers and Richard Stovin-Bradford discuss how to regulate banks better and how to handle those that are just too big to fail]</ref>

==Potential solutions==
Many consider it too late to reform the financial system.<ref>[http://www.zerohedge.com/news/2013-05-25/bill-black-our-system-so-flawed-fraud-mathematically-guaranteed Fraud is Guaranteed], Bill Black</ref><ref>[http://lewrockwell.com/stockman/stockman19.1.html A Review of The Great Deformation]</ref><ref>[http://matterhornassetmanagement.com/2013/03/18/get-your-assets-out-of-the-banks-now/ Get Your Assets Out of the Banks - NOW], Egon von Greyerz</ref><ref>[http://news.goldseek.com/LewRockwell/1306767600.php Is Greece the Future of America?], Mike Rozeff</ref><ref>[http://www.marketoracle.co.uk/Article27739.html Financial Slaughterhouse], Ashvin_Pandurangi</ref><ref>[http://www.marketoracle.co.uk/Article27764.html The Big QE2 Shakedown], Mike Whitney</ref><ref>[http://www.youtube.com/watch?v=-GmBoJ7qHYg&feature=player_embedded Simon Johnson INET]</ref><ref>[http://www.guardian.co.uk/business/2010/sep/14/banking-reforms-too-little-too-late Too Little Too Late], UK Guardian, 14 Sept 2010</ref><ref>[http://www.marketoracle.co.uk/Article27583.html Fed Reckoning Day Realities for Investor Pains and Gains], Deepcaster LLC</ref><ref>[http://maxkeiser.com/2013/02/02/kr401-keiser-report-fake-it-til-you-make-it-economy/ Fake It Till You Make It]</ref><ref>[http://www.marketoracle.co.uk/Article39037.html Fiat Currency Witches Brew], Ty Andros</ref> There is now so much debt in the system that the reduction in money supply growth necessary to curb [[malinvestment]] and financial bubbles would only result in financial crises and mass bankruptcies and, ultimately, business assets being transferred to the banking system. This is obvious when one observes that with no debt there is no money. With a slowing economy and reduction in money supply all assets subject to debt would inevitably be flushed through the banking system as a mathematical necessity.<ref>[http://www.moneyasdebt.net/ Money as Debt]</ref> Therefore virtually all assets will ultimately end up under the control or ownership the banking system if the present system is allowed to continue, as slowing money supply growth is inevitable with slowing population and economic growth. This is not true in a true free market monetary system<ref>[http://lewrockwell.com/woods/woods225.html Greenbackers Are Nuts]</ref> but is true of our current government manipulated debt-based system.<ref>[http://www.moneyasdebt.net/ Money as Debt]</ref>

When debt levels are unsustainable there are only a limited number of possible scenarios, and as each country reaches its debt limits each country will need to choose between these alternatives, as Iceland, Ireland, Cyprus, Greece and many other countries have already experienced. The debt is monetized, the debt is forgiven by the creditor, the debt is repudiated by the debtor and defaulted upon, the debt is postponed by temporary suspension of repayments, or the debtor finds unexpected or new ways to pay back the debt, which may include theft or confiscation from others.

The "Icelandic Solution" involved repudiation.<ref>[http://www.zerohedge.com/node/475643 The Secret Sauce of Iceland's Success Story: Debt Liquidation?]</ref> Private banks were allowed to fail and social security measures for the poor and indebted were increased. However this option is virtually impossible in other larger, less homogeneous countries given the power of the financial services sector over government in most other countries.<ref>[http://www.zerohedge.com/news/2013-01-26/only-3-minutes-worth-listening-davos Interview with Iceland's President Olafur Ragnar Grimson]</ref> It should be noted that all IMF member countries have a central bank at the heart of their financial system.<ref>[http://www.zerohedge.com/news/2013-09-16/25-fast-facts-about-federal-reserve Fast Facts About the Federal Reserve]</ref> The UK went so far as to trigger anti-terrorism legislation against Icelandic banks in a bid to pressure Iceland to pay out claims against its private banks.<ref>[http://reason.com/archives/2012/09/07/iceland-provides-a-blueprint-for-survivi Iceland Shows Other Europeans How to Survive Bankruptcy], ''Reason''</ref>

The simplest and cleanest solution for any debt-fuelled crisis is simply to [[default]] and not attempt to pay back the loans - particularly if the debt has been created unethically or fraudulently.<ref>[http://mises.org/daily/6369/The-Ethics-of-Repudiation The Ethics of Repudiation]</ref><ref>[http://mises.org/daily/5476/ There Is Life After Default], Peter Klein</ref><ref>[http://www.oftwominds.com/blogsept11/Zeus-debt-forgiveness-9-11.html Endgame], Zeus Yiamouyiannis, Ph.D.</ref><ref>[http://globaleconomicanalysis.blogspot.com/2011/02/massive-rout-in-irish-elections.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+MishsGlobalEconomicTrendAnalysis+%28Mish%27s+Global+Economic+Trend+Analysis%29 Default Best Option for Ireland], MISH</ref><ref>[http://mises.org/daily/5449/Defaulting-on-the-Feds-Bonds Defaulting on the Fed's Bonds], Robert Murphy</ref> If, as Paul Krugman and other Keynesians have argued<ref>[http://lewrockwell.com/anderson/anderson330.html Do We Really 'Owe It to Ourselves]</ref> "we owe it to ourselves", then there should be no problem repudiating that debt as it would merely involve an accounting adjustment.<ref>[http://bastiat.mises.org/2013/02/we-only-repudiate-it-to-ourselves/ We Only Repudiate It to Ourselves]</ref> This was the solution chosen by Iceland, even in circumstances which involved powerful international creditors. Despite enormous pressure from the UK government to try to force the Icelandic government to bail out its banks, it chose not to do so and allowed the private banks to default.<ref>[http://www.dailymail.co.uk/news/article-1080233/Icelanders-hit-Brown-freezing-banks-assets-We-terrorists-campaign.html Icelanders hit back at Brown]</ref> The Greek government also partially defaulted on its debts in 2012.<ref>[http://www.bbc.co.uk/news/business-17341381 Greek Default]</ref> David Graeber, author of ''Debt: The First 5000 Years'' has stated a global debt Jubilee is inevitable.<ref>[http://www.youtube.com/watch?v=SxZtfi2pYNo&list=SPPszygYHA9K2ZtV_1KphSugBB7iZqbFyz&index=6 Max Keiser Interview with David Graeber]</ref> However, particularly where government debt default is involved, bankers generally do everything to avoid this "inevitable" outcome because it (a) reduces the value of their asset (debt-based government bonds) (b) reduces or even destroys their income stream (interest on bonds) and therefore may affect their retained earnings in future (and their credit rating and compliance with Basel III rules on Tier 1 capital) (c) can result in a systemic crisis as many banks will be using that government debt to satisfy their liquidity requirements and reduce counterparty risk - even more so under Basel III (which requires a minimum proportion of "liquid" assets to be held by the banks - and those "assets" mainly consist of government bonds) and (d) signals to other countries that it is possible to escape debt without consequence and so potentially reduces the value of government debt in surrounding countries.<ref>[http://globaleconomicanalysis.blogspot.com/2011/05/trichet-goes-ballistic-walks-out-of.html Trichet Goes Ballistic], MISH</ref> Self-interested bankers are therefore often desperate to avoid government debt default, and generally much prefer an economy to be strangled by debt rather than be freed of it.<ref>[http://globaleconomicanalysis.blogspot.com/2011/05/trichet-goes-ballistic-walks-out-of.html Trichet Goes Ballistic], MISH</ref>

Confiscation or theft is often the desperate debtor's only option, if the creditors are so powerful the debtor cannot default. The sudden confiscation of part of "insured" bank depositors' savings in Cyprus is an extreme example of the last option and is the international bankers' and creditor governments' preferred "solution" as it means their debts get repaid, however unjustly.<ref>[http://www.reuters.com/article/2013/03/17/us-eurozone-cyprus-risk-idUSBRE92G0BG20130317 Cyprus bank levy]</ref><ref>[http://www.marketoracle.co.uk/Article39536.html Cyprus Haircut]</ref><ref>[http://www.zerohedge.com/news/2013-03-22/ecb-set-fair-cypriot-standard-living-capital-controls Capital Controls in Cyprus]</ref>

As an example of the consequences of the two alternatives, Iceland did not try to save its private bankers but instead permitted them to default on private bond payments.<ref>[http://www.zerohedge.com/news/2013-01-26/only-3-minutes-worth-listening-davos Interview with Iceland's President Olafur Ragnar Grimson]</ref> Ireland on the other hand guaranteed private bank debt and in doing so subjected the taxpayers of that country to decades of payments for debts that were not incurred on their behalf or for their benefit. Many commentators have observed that in 2010 [[Iceland]] recovered much faster than other countries such as [[Ireland]].<ref>[http://www.smh.com.au/business/iceland-bounces-back-as-pain-leads-to-gain-20101208-18pvm.html Iceland Bounces Back]</ref><ref>[http://www.vanityfair.com/business/features/2011/03/michael-lewis-ireland-201103?printable=true When Irish Eyes Are Crying], Michael Lewis</ref> In his extensive analysis of the aftermath of the banking panic in Ireland, Michael Lewis wrote of his puzzlement that the timid Irish government thought it was beyond the bounds of acceptable political discourse to consider default on privately issued Irish bank bonds, when Iceland successfully defaulted and only after this did they nationalize their banking system.<ref>[http://www.vanityfair.com/business/features/2011/03/michael-lewis-ireland-201103?printable=true When Irish Eyes Are Crying], Michael Lewis</ref> Commentators still dispute the relative costs and benefits of the policies implemented in Iceland and Ireland. The inflation rate has remained higher but unemployment rate remained substantially lower in Iceland compared to Ireland.<ref>[http://mises.org/daily/6575/Inflation-Has-Not-Cured-Icelands-Economic-Woes Inflation and Iceland]</ref><ref>[http://www.marketoracle.co.uk/Article42958.html Bank Guarantee Bankrupted Ireland]</ref>

In the absence of outright default, some governments simply delay addressing the issues of debt and default, with the central bank buying government bonds and manipulating the stockmarket and other asset and commodity markets to keep solvency in the banking system and government alive.<ref>[http://lewrockwell.com/barnett/barnett39.1.html Are the Federal Reserve and Its Primary Dealer Banks Manipulating the Stockmarket?]</ref><ref>[http://www.gold-eagle.com/editorials_12/lundeen061712.html Market Manipulation]</ref> Time may allow re-inflation of the markets through the gradual injection of new [[debt money]] into the system through new borrowings. It is a rare "[[black swan]]" event for a cluster of private businesses or banks to default at the same time and governments often hope that this will not happen again once it has happened already. However, if the crisis is one of national solvency, waiting passively for recovery may only delay - and exacerbate - the final catastrophe as the debt-based monetary system pushes all businesses slowly towards the next crisis by confusing and misleading market participants with false price signals, particularly as they relate to interest rates. Once the next crisis hits because of even more confused price signals due to government interference in the market for money, time is something panicked financiers and investors are least likely to want to give up when the threat is never getting their [[money]] out of the imploding investment [[bubble]]. In extreme cases [[bank]]s could set up "independent" corporate investment vehicles to buy the assets associated with the [[bad debt]],<ref>[http://www.dealbreaker.com/2007/10/citigroup_looks_to_lend_money.php Citigroup looks to lend money]</ref> thereby allowing [[borrower]]s to liquidate their investments and allow time for the markets to re-inflate. Alternatively, these "sour" loans, that have gone bad through too much debt overwhelming the markets, could be dumped or "hidden" on the central bank's balance sheet, and swapped for more secure government debt (financed through compulsorily acquired taxes, which are immune from the risk of private bankruptcy). However the holding costs involved in these measures would be extremely high and would not guarantee that the losses could be averted if no new gullible investors could be found to offload these distressed assets.<ref>[http://www.youtube.com/watch?v=n8w6Nx2rfiE A Wikileaks for the Fed?]</ref> More fundamentally, these short-term "parachutes" used after bubbles burst do not save ordinary borrowers from [[foreclosure]] and [[bankruptcy]], nor do they address the pernicious long-term dysfunctional aspects of [[fractional reserve banking]] described above. These problems are temporarily averted, only to be dealt with yet again by the next generation of indebted governments and peoples.<ref>[http://www.informationclearinghouse.info/article18431.htm The Era of Global Financial Instability, by Mike Whitney]</ref><ref>[http://www.youtube.com/watch?v=n8w6Nx2rfiE A Wikileaks for the Fed?]</ref> Simply deferring the crisis and repeatedly bailing out the banks may simply entrench misallocation of resources within the financial and governmental sectors, starving private businesses of the savings needed to invest and produce.<ref>[http://www.zerohedge.com/news/2013-01-26/only-3-minutes-worth-listening-davos Interview with Iceland's President Olafur Ragnar Grimson]</ref>

The preferred long-term free market solution (outright default and a return to free market money and the abolition of legal tender and central banks) is extremely unlikely.<ref>[http://seekingalpha.com/article/273466-4-reasons-the-u-s-will-never-return-to-a-gold-or-silver-standard 4 Reasons the US Will Never Return to a Gold or Silver Standard]</ref> In addition, given that bankers and central banks "stole" most of the people's gold, with mass confiscations dating back to the 1930s in the US<ref>[http://www.gold-eagle.com/editorials_08/nielson031411.html The Great Gold Bait-And-Switch] Jeff Nielson</ref> and earlier in Europe,<ref>[http://www.lewrockwell.com/north/north107.html Buyers of Gold], Gary North</ref> an immediate and uncompensated<ref>[http://theeconomiccollapseblog.com/archives/10-things-that-would-be-different-if-the-federal-reserve-had-never-been-created 10 Things That Would Be Different]. Note: "uncompensated" in this context means "without allowing widespread debt default with minimal punishment" or "without the issuance of debt-free money to the general populace prior to a return to the gold standard"</ref> return to the gold standard now would simply further enrich bankers and impoverish workers through crushing deflation, as the value of the assets the middle class had previously saved in (housing and mutual funds) collapsed and gold (the "elite banker's money") suddenly soared in value,<ref>[http://www.zerohedge.com/news/2013-02-26/central-banks-cannot-create-wealth-only-liquidity Central Banks Cannot Create Wealth]</ref> allowing bankers yet another generation of largesse from past theft. It should be noted that one of the principal financial assets of both the IMF and the US central bank is confiscated gold (the other being government bonds).<ref>[http://www.xat.org/xat/worldbank.html The History of Money]</ref> Less than 1% of all pension fund assets held by the general public are currently allocated to physical precious metals and many mutual funds have mandates effectively prohibiting them from holding physical precious metals.<ref>[http://sgtreport.com/2011/07/gold-silver-and-pension-funds-portfolio-diversification-myths/ Gold, Silver and Pension Funds]</ref> If the gold price were to soar, the very institutions most responsible for financial disorder would be those most likely to benefit from the chaos, having already positioned themselves to benefit from any price explosion in gold.

Given that both the Icelandic and radical free market solutions are effectively impossible to implement to any significant extent, some analysts of the current debt-based monetary system consider that, after decades of excess debt and fiat money, the current capital structure is so distorted and malinvested, the food supply so industrialized and vulnerable to shocks, and the environment generally so polluted from government-protected mining and mass industrialization that there is no hope for the vast majority of the middle class and indeed the mass of humanity in the coming decades as a combination of periodic confiscation and selective debt monetization destroys any stability in the world economy.<ref name="death"/>

Getting back to a market-based banking system would require, at minimum: (1) abolition of all deposit insurance; (2) eliminating the doctrine of "Too Big to Fail" by prohibiting the central bank from buying any assets from insolvent banks; and (3) allowing the market to set interest rates by removing this price fixing power from the central bank and allowing the real inter-bank market to set interest rates.<ref>[http://bastiat.mises.org/2012/06/misesians-in-mordor-the-video/ Misesians in Mordor]</ref> However, such changes to the global monetary system would likely trigger immediate bank runs on the weakest banking institutions and (most likely) a systemic crisis, resulting in a sudden deep depression in the short term and a period of minimal or no capital investment in the medium term as access to lending dried up from suddenly illiquid financial institutions. Although in the minds of many Austrians, the resulting system would be greatly preferable to the current dysfunctional and unsustainable system, the transition period would likely be so traumatic that no democratic government (or no government at all) would likely countenance such deregulation, nor would they likely be allowed to by the banks themselves.

Government and banking have become so intertwined there is virtually no difference between them, as banks bail out governments who in turn bail out banks in Ponzi scheme fashion.<ref>[http://www.guardian.co.uk/commentisfree/2012/mar/22/greece-european-banks-eurozone European banks saving Greece or themselves?]</ref>

Coercive, rule-bound government, by its very nature, can only perpetuate itself if it constantly maintains a monopoly of force and is widely respected as the final arbiter of disputes between any two parties within its jurisdiction.<ref>[http://www.dailypaul.com/140907/hans-hoppe-on-why-he-thinks-limited-government-is-impossible Hans Hermann Hoppe on why limited government is impossible]</ref> Governments do not obtain their revenue through donations or voluntary payments but rather either tax the populace or print fiat money to spend on projects the government deems worthwhile. There is therefore an inherently dangerous power in government spending. Good government exists to provide public goods, regulate externalities and protect and enforce property rights.<ref>[http://blog.mises.org/6546/james-wilson-on-the-purpose-of-government-and-the-constitution/ James Wilson on the purpose of government], James Galles</ref> However, if government force is used not for public purposes but to protect and enhance the power of a tiny political and financial elite, parasitic thieving forces can take over monopoly government and destruction of the economy can occur without the ability of the people to revolt or defend themselves against the depredations of government force.<ref>[http://www.lewrockwell.com/orig11/wile13.1.html One World Government], Hans Hermann Hoppe</ref><ref>[http://www.youtube.com/watch?v=DNcDu0z9UfQ Matt Tiabbi Interview on UBS Scandal]</ref> Destructive policies can therefore continue for longer than the survival of the economy itself, especially if people have been lulled into complacency by a long history of relatively benign government whilst parasitic forces slowly take over power from behind the scenes.<ref>[http://www.lewrockwell.com/orig11/wile13.1.html One World Government], Hans Hermann Hoppe</ref> Some consider that modern democracy has been subverted and that the two-party choices being presented today are a charade, with little real difference between duopoly political parties, which are just shams to cover the slow but inexorable takeover of the levers of power by the financial "elite", who do not respect nor care about the will of the people, who they consider too stupid or powerless to be treated seriously.<ref>[http://www.youtube.com/watch?v=DNcDu0z9UfQ Matt Tiabbi Interview on UBS Scandal]</ref><ref>[http://globaleconomicanalysis.blogspot.com/2011/06/vote-for-whoever-you-want-bailout.html Vote for Whoever You Want], MISH</ref><ref>[http://lewrockwell.com/wile/wile36.1.html Stop Clinging to False Hope], Anthony Wile</ref><ref>[http://www.marketoracle.co.uk/Article28949.html United States of Denial], James West</ref> Since the mid-1990s and even earlier it has been argued by many commentators that the gold default of August 15, 1971 would inevitably lead to economic disaster due to the distorting and parasitic effects unlimited fiat money and credit creation would have on the productive private economy.<ref>[http://dailyreckoning.com/armageddon-can-wait/ Armageddon Can Wait], Bill Bonner</ref><ref>[http://www.nytimes.com/2011/08/01/business/deal-may-avert-default-but-some-ask-is-that-good.html?pagewanted=1&_r=1&hpw Deal May Avert Default, but Some Ask 'Is That Good?']</ref><ref name="Landis_Reprieve" /> The relentless exponential growth in retirement and welfare benefits will now be enough to bankrupt many Western governments (including the United States).<ref name="Landis_Reprieve" /><ref>[http://www.amazon.com/Boomergeddon-Deficits-Government-Devastate-Retirement/dp/1892538539/ref=sr_1_1?ie=UTF8&qid=1305008253&sr=8-1 Boomergeddon], James A. Bacon Jr</ref> No one in power today appears willing to tackle either the corrupt banking industry or government largesse.<ref>[http://www.youtube.com/watch?v=DNcDu0z9UfQ Matt Tiabbi Interview on UBS Scandal]</ref><ref>[http://globaleconomicanalysis.blogspot.com/2011/06/vote-for-whoever-you-want-bailout.html Vote for Whoever You Want], MISH</ref><ref>[http://www.prudentbear.com/index.php/thebearslairview?art_id=10538 Sayonara, Washington], Martin Hutchinson</ref> Too many in power have a vested interest in the continuation of the system of spiraling inflation and debt to stop it, even if it could be stopped.<ref>[http://www.youtube.com/watch?v=DNcDu0z9UfQ Matt Tiabbi Interview on UBS Scandal]</ref><ref>[http://www.zerohedge.com/article/guest-post-global-economy-burns-while-its-leaders-fiddle Global Economy Burns, While Its Leaders Fiddle], Nomi Prins, ZeroHedge</ref> Whilst the general economy suffers, old infrastructure collapses, man-made environmental crises abound, retailers go bankrupt, millions are foreclosed upon and are left homeless (whilst at the same time hundreds of thousands of houses lie empty and decaying) and real average incomes are decimated, perversely, banking bonuses and lobbyists' incomes have skyrocketed and the powers of the Fed and other central banks have increased because of increased regulatory duties despite their previous failures.<ref>[http://www.guardian.co.uk/politics/2011/jan/10/banks-unlimited-bonuses-ministers Banks given go-ahead to pay unlimited bonuses], Guardian UK</ref><ref>[http://www.creditcrunch.co.uk/forum/topic/9253-banking-cheats-will-always-prosper/ Bank Cheats Will Always Prosper], CreditCrunch.co.uk</ref><ref>[http://dailyreckoning.com/the-expanding-industry-of-us-government/ The Expanding Industry of US Government], Bill Bonner</ref> Despite this obvious incompetence and despite repeated failures of policy at the highest levels, anyone advocating solutions beyond those approved within failed mainstream two-party thought is commonly labelled "insane", "crazy" or an "extremist".<ref>[http://www.salon.com/news/opinion/glenn_greenwald/2010/05/28/crazy Who are the real "crazies"?], Glenn Greenwald, Salon.com</ref><ref>[http://lewrockwell.com/orig11/mullen-t4.1.1.html Extremism is the New Race Card], Tom Mullens</ref><ref>[http://www.telegraph.co.uk/finance/financialcrisis/8669352/Global-slump-warnings-if-US-triggers-insane-default.html Global slump warning if US triggers 'insane' default], Ambrose Evans-Pritchard</ref> Noted gold investor, Jim Sinclair, has publicly stated that the chaos has one cause - bankers have bought governments around the world and today's bankers are little more than irredeemably shallow "sociopaths", unable to grow a conscience and unable to foresee or care about the broader societal consequences of their actions beyond their own incestuous social groupings.<ref>[http://jsmineset.com/2009/08/31/china-invokes-a-stop-loss-on-otc-derivatives/ OTC Derivatives], Jim Sinclair</ref><ref>[http://maxkeiser.com/2011/07/17/alex-jones-on-satanic-rituals-of-bohemian-grove/ Alex Jones on Bohemian Grove], RTTV</ref> Leading British specialists in the pathology of the psychopath, Professors Robert Hare and Paul Babiak suspect the banking industry does indeed attract psychopaths and probably has a much higher proportion of mentally unstable psychopaths as executives compared to other industry sectors, although their comprehensive test (determining the degree of psychopathology in the workplace) has yet to be applied to the banking sector or to senior government officials or politicians.<ref>[http://www.ft.com/intl/cms/s/0/41fe2882-9cbe-11e0-bf57-00144feabdc0.html#axzz1QH9AQOwG Alfred Hitchcock' 'The Bankers'], James Makintosh, FT.com</ref> Michael Price, co-director of the Centre for Culture and Evolutionary Psychology at Brunel University in London agrees that the characteristics that make for good traders and investment bankers are very similar to those that define psychopaths. Former UK drug tsar David Nutt has stated that the banking crisis was caused by too many bankers taking cocaine.<ref>[http://www.telegraph.co.uk/finance/financialcrisis/9993266/Financial-crisis-caused-by-too-many-bankers-taking-cocaine-says-former-drugs-tsar.html Financial crisis caused by too many bankers taking cocaine], ''Telegraph''</ref> Therefore, given their likely sociopathic mind-set and hedonistic cocaine drug culture, provided they themselves are acquiring a greater share of gross national income, many bankers simply do not care about the consequences and will continue to label others as "crazy" or "insane" or "terrorists" for so long as it gives them cover to engage in their own [[embezzlement|criminal]] conduct and for so long as it permits the in-bred corruption to continue at the highest levels.<ref>[http://www.mises.org/daily/6314/Why-Bankers-Avoid-the-Public-Eye Banking and the State]</ref><ref>[http://blogs.telegraph.co.uk/news/nilegardiner/100099341/joe-biden-compares-the-tea-party-to-terrorists-is-this-the-most-crass-and-nasty-white-house-in-modern-us-history/ Joe Biden compares the Tea Party to terrorists], Nile Gardiner, UK Telegraph</ref> If the charade collapses and the elite are threatened, they will simply kill anyone who threatens them, as they have proven to do repeatedly in the past.<ref>[http://www.lewrockwell.com/lewrockwell-show/2011/02/15/187-confessions-of-an-economic-hit-man/ Confessions of an Economic Hit-Man], John Perkins</ref>

It should be noted that average bankers still earn around US$370,000<ref>[http://www.guardian.co.uk/business/2011/jan/14/jp-morgan-bankers-share-10bn Anger as JP Morgan bankers get $10bn pay and bonus pot]</ref> (or around £236,000 in the UK)<ref>[http://www.guardian.co.uk/business/2011/feb/15/barclays-capital-average-pay-236000-pounds Barclays investment bankers see average pay rise to £236,000]</ref> and this has steadily increased even in the aftermath of the financial crisis. Those who head up the "Too Big To Fail" banks earn around US$18 million per year, with some executives doubling their own pay in 2010.<ref>[http://www.guardian.co.uk/business/2011/apr/02/lloyd-blankfein-executive-pay-bonuses Goldman Sachs CEO's pay nearly doubles despite slump in profits]</ref> Lawyers who service and support the international banking and business community are reported to be earning up to US$2 million a year even in small peripheral countries such as Australia.<ref>[http://www.afr.com/p/national/legal_affairs/talent_war_pushes_star_lawyers_pay_ZDlK7zEXWaISbNy1QCtIUO Anger as JP Morgan bankers get $10bn pay and bonus pot]</ref>

Given many of these people are not actually producing services people would voluntarily pay for in a genuine free market economy, many of these service providers associated with the issuance and distribution of monopoly currency would be made redundant or be rendered unemployable almost immediately upon a return to a true free market gold standard. It is to be expected that these people would be violently opposed to any change in the ''status quo'' given the dramatic change in lifestyle that this would necessitate. In particular, it is to be expected that these people would specifically oppose the abolition of legal tender laws and fight against any formal declaration by any government that fractional reserve banking is a form of [[embezzlement]] or counterfeiting, or that the current financial system is a [[Ponzi scheme]] (which are generally illegal in most Western countries if they are not government-supported).

Jim Sinclair suggests that many senior participants in the international banking and derivatives industry should be jailed<ref>[http://jsmineset.com/2010/10/31/jims-mailbox-573/ Debt Burden Being Transferred], Jim Sinclair</ref> to protect the public from repeatedly being "raped"<ref>[http://jsmineset.com/2010/11/21/in-the-news-today-713/ EU Ministers Said To Plan Meeting Over Ireland], Jim Sinclair</ref> by their scams and has the following conclusion on his website:<ref>[http://jsmineset.com/2010/11/09/in-the-news-today-701/ There is no practical solution], Jim Sinclair</ref>

{{quote|For years I have been telling you that there is NO PRACTICAL SOLUTION to the total of all the mistakes that have been made since Roosevelt, in a depression, started it all.}}

Jim Sinclair considers it too late to save the system<ref>[http://www.youtube.com/watch?v=IF24atvNkSo&feature=player_embedded Jim Sinclair Interviewed by James Turk] Quote: "Who needs enemies when we have the financial leadership we have?"</ref> and recommends people become self-sufficient and buy gold to await the inevitable collapse of the political and economic system and the associated breakdown in the division of labor.<ref>[http://jsmineset.com/2011/04/07/the-system-has-failed/ The System Has Failed], Jim Sinclair</ref>

Max Keiser has stated that the culture of actual ''physical'' sexual coercion and harrassment allegedly exhibited in the financial services industry is simply symptomatic and an outgrowth of a culture of ''financial'' rape and exploitation.<ref>[http://www.youtube.com/watch?v=skwj6e9xvH8&feature=player_embedded#at=102 Savers vs Speculators] Quote: Max Keiser: "Munich Re, a financial terrorist responsible for creating ghettos. Financially disadvantaged folks who are on the short end of the 'ghettoization' of the financial terrorist schemes...are forced to wear ''yellow armbands'' and be ''sex slaves'' for their German hosts." Stacy Herbert: "Yes. And be stamped on their arms afterward to prove that they were used." Max Keiser: "Yes. Let's not forget the little serial code-stamp on the wrist as part of the package." Stacy Herbert: "But Max, the story here is that this goes from the very bottom. These are just agents going door-to-door selling insurance products in the financial services industry. The top of the pyramid of the banking Establishment is Dominique Strauss-Kahn." Max Keiser: "This is a culture. Dominique Stauss-Kahn is part of the banking ''culture''. There's Dominique Strauss-Kahn, Lloyd Blankfein, Jamie Dimon, this guy Pandit over at Citigroup, the CEO just paid himself $42 million for stealing $420 million - they have a culture of predator behavior where once you - like a serial killer - once you steal money from people with mortgage fraud or with banking fees that are illegitimate or with collateralized debt obligations you get a taste for serial financial killing. You graduate to these higher crimes and you become a Dominique Strauss-Kahn or a Lloyd Blankfein or a Jamie Dimon where serial financial murder is part of your day-to-day life. That's the culture you live in."</ref> In order to be part of the system, you must be blind to its consequences. Therefore, no one with a conscience can become powerful enough within the system to fundamentally change trajectory from its current catastrophic path.<ref>[http://www.youtube.com/watch?v=WqyCjR9JEMA&feature=player_embedded Nothing Stops Banks], Matt Taibbi</ref>

Ironically, many victims of rape and abuse come to blame themselves and never fight back, preferring to adapt to a life of abuse or enslavement. This is called "learned helplessness" in psychological terms. Doug French finds a direct analogy between the dynamics of ''physical'' rape and ''financial'' abuse, with many indebted individuals ''blaming themselves'' for their predicament and refusing to default on their debts, even though it would be in their clear financial interest to do so.<ref>[http://mises.org/daily/5409/BatteredHomeowner-Syndrome Battered Homeowner Syndrome], Doug French. Quote: 'Lenore Walker is the pioneer in the field of battered-spouse syndrome, with her book The Battered Woman. She believes that experiencing the repeated cycles of violence can result in a spouse developing "learned helplessness," a psychological state identified by psychologist Martin Seligman. The abused believe they lack control over their situation and are convinced escape is impossible. Their motivation to escape diminishes as they become increasingly passive.

Walker explains that the constant cycles of violence and reconciliation result in the following beliefs:

The abused

believes that the violence was his or her fault,
has an inability to place the responsibility for violence elsewhere,
fears for his/her life and/or the lives of his/her children, and
has an irrational belief that the abuser is omnipresent and omniscient.

These beliefs are strikingly similar to what underwater homeowners feel.

The abused believes that the violence was his or her fault. "It was my own fault for buying a house at the top of the market in the first place and borrowing too much money to do it." "I made my bed, now I must sleep in it, no matter how much financial pain it causes me."

The abused has an inability to place the responsibility for violence elsewhere. "It's nobody's fault but my own," say people with 20/20 hindsight. "Nobody made me sign the mortgage. I'm so stupid. The bank doesn't have to negotiate with me."

The abused fears for his/her life and/or the lives of his/her children. "My credit will be ruined. I won't be able to rent an apartment. My low credit score may keep me from getting a job. I don't want to uproot the kids and have to admit that daddy and mommy made a financial mistake."

The abused has an irrational belief that the abuser is omnipresent and omniscient. The abuser in this case is the lender or owner of the mortgage. The borrower fears that these lenders can take everything they have, leave them with nothing, and make their lives miserable forever.

At the same time, default moralizers reinforce these feelings. They have no sympathy for those making a poor housing and mortgage choice. A person must suffer the consequences of their actions, it's claimed.'</ref>

John Perkins, author of ''Economic Hitman'', has openly stated that the U.S. government is merely a front runner for major corporate interests and has brutally assassinated leaders of countries where reform has been attempted.<ref>[http://www.youtube.com/watch?v=xmU9R-BaFIQ Max Keiser Interview with John Perkins]</ref> The zealotry and extremism against genuine and honest monetary reformers on the one hand and the payoffs and largesse given to unprincipled and corrupt supporters of the current monetary regime on the other ensure there is no path of reform left for those potential leaders with a conscience.<ref>[http://www.zerohedge.com/article/more-political-capture-goldman-hires-top-republican-fed-transparency-foe-spends-more-time-se More Political Capture], ZeroHedge</ref>

Dimitry Orlov, author of ''Reinventing Collapse'', has written extensively about the striking similarities between the collapse of the USSR and the multiple environmental, economic and social crises facing the USA. He also predicts economic, political and social collapse in much of the West and in particular predicts that peak oil will result in some countries being cut off completely from oil supplies resulting in sudden social upheaval and starvation and believes that it is too late for any kind of meaningful reform:<ref>[http://www.youtube.com/watch?v=KLdwzcA9ZdM&feature=player_embedded#at=997 Dimitry Orlov Interview with Max Keiser - ''Reinventing Collapse'']</ref>

{{quote|(US military adverturism overseas) is just a very striking example of being unable to stop, even though what you're doing isn't actually working...

By demolishing as much of the social infrastructure as exists in the country... you will end up with an even less literate population that will be unable to oppose the government, unable to stand up for themselves and demand that their rights and needs be met...

People who think they can somehow skirt the financial system are wrong. They will be dominated by the Bernankes of this world and others. There isn't really a way out except to make do without money. And that's kind of what I try to explain to people is: Reduce your needs for any kind of interaction with the official economy and you will do better.}}

Given these repeated financial crises arising from the fiat monetary system, many [[monetary reform]]ers predict that there will inevitably be widespread default or hyperinflation or depression - or most likely all three simultaneously in what Ludwig von Mises predicted would be a "final and total catastrophe" of our unsustainable, Ponzi-like, fiat monetary system.<ref>[http://mises.org/daily/5041/Whats-Behind-the-Currency-War What's Behind the Currency War], Anthony Mueller</ref> After this "catastrophe"<ref name="Landis_Reprieve">[http://www.goldensextant.com/SavingtheSystem.html Fiat's Reprieve: Saving the System, 1979-1987], Robert K. Landis, August 21, 2004.</ref> in which a significant proportion of the population may die through starvation or war<ref>[http://lewrockwell.com/bonner/bonner602.html We're all going to die]</ref><ref>[http://www.zerohedge.com/article/20-signs-horrific-global-food-crisis-coming?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+zerohedge%2Ffeed+%28zero+hedge+-+on+a+long+enough+timeline%2C+the+survival+rate+for+everyone+drops+to+zero%29 20 Signs], ZeroHedge</ref><ref>[http://www.lewrockwell.com/adams-m/adams-m15.1.html US Agriculture Collapse]</ref><ref>[http://www.marketoracle.co.uk/Article26605.html Population Reduction], Chris Kitze</ref><ref>[http://www.rickackerman.com/2011/03/getting-the-jump-on-a-possible-food-shortage/ Getting the Jump on Food Shortages], Marilyn Ackerman</ref><ref>[http://www.goldismoney2.com/archive/index.php/t-524.html?s=d418ff253326772a09e1a8d992da7753 Venetian Bankers and the Dark Ages]</ref><ref>[http://mises.org/daily/6142/The-Apocalyptic-Vision-of-The-Road The Road], Ben O'Neill</ref> a spontaneous market-induced return to the [[gold standard]] is anticipated to be the most likely result.<ref>[http://www.youtube.com/watch?v=VMngK0t5WkY Mike Maloney interview with Max Keiser], The Keiser Report</ref><ref name="Landis_Reprieve" /><ref>[http://globaleconomicanalysis.blogspot.com/2011/02/us-dollar-about-to-lose-reserve.html US Dollar About to Lose Reserve Currency Status: Fact or Fiction?], MISH</ref><ref>[http://www.marketoracle.co.uk/Article40253.html The Great Gold Redemption], Peter Schiff</ref> Other possible solutions following the catastrophe include a return to legally enforced full reserve banking combined with the issuance government-issued debt-free [[fiat currency]], or [[free banking]] and the issuance of private coinage and private money. If these solutions are not initiated soon, it can be expected that a complete financial "meltdown" will ensue at some stage, as environmental crises and destruction of arable land slow GDP growth in developing nations and fewer young people in developed economies can be found who are willing to go into debt in sufficient magnitude to pay off the debts that have already been accumulated.<ref name="Bonner_Swan" /><ref name="Landis_Reprieve" /> As extreme inequality increases, [[foreclosure]]s mount and financial crises repeatedly erupt, many believe a political crisis will eventually result in calls for revolution and fundamental [[monetary reform]].<ref>[http://www.youtube.com/watch?v=uV_gwvSibmM&feature=player_embedded#at=510 Max Keiser on Alex Jones]</ref><ref>[http://www.youtube.com/watch?v=VMngK0t5WkY Mike Maloney interview with Max Keiser], The Keiser Report</ref><ref name="Landis_Reprieve" /> However, as noted above, some commentators consider that it is already too late to avoid a combined financial, environmental and demographic catastrophe even if reform is now attempted.<ref>[http://globaleconomicanalysis.blogspot.com/2011/03/oil-prices-are-double-edged-sword-peak.html Peak Everything?], MISH</ref><ref>[http://www.population-security.org/28-APP2.html NSSM 200 Directive], Henry A. Kissinger, April 24, 1974</ref><ref>[http://www.youtube.com/watch?v=0KInB2rvgaY&feature=fvsr Eco Eco Disaster], Keiser Report</ref>

Even if worldwide economic catastrophe cannot be averted at this stage of the metastasizing financial crisis, choices will still need to be made by each government in response to the crisis. On-going, worsening, [[debt]]-created crises in the economy and society (and the unsustainable damage to the [[environment]] caused by debt-created [[overconsumption]]) are likely to turn monetary and economic policies either to the extreme left or to the extreme right, as there are a number of competing solutions to the debt-based monetary "problem".<ref>[http://www.youtube.com/watch?v=jqjyk2cx5WU&feature=player_embedded#at=696 Taste of Freedom E126], Max Keiser, Keiser Report</ref> It should be noted that some commentators consider that Western governments have in recent years chosen a combination of the "worst" of all possible options: bailing out banks and increasing government spending and indebtedness whilst periodically trying to enforce austerity against the middle class and the ordinary working class.<ref>[http://www.zerohedge.com/news/2013-01-26/daniel-hannan-destroys-3-unquestionable-myths-our-crisis Daniel Hannan Oxford Speech]</ref> Some have called Western government policy reactions to the financial crisis as a decisive move towards "Crony Capitalism" that is neither "free market" nor "socialist" but rather the last desperate acts of a corrupt banker-government cabal of "counterfeiters".<ref>[http://www.zerohedge.com/news/2013-02-06/guest-post-all-well All Is Well], Jim Quinn</ref><ref>[http://www.mises.org/daily/6314/Why-Bankers-Avoid-the-Public-Eye Banking and the State]</ref><ref>[http://www.marketoracle.co.uk/Article37021.html Why We Are Bailing Out the Banks], Jesse</ref><ref>[http://www.economist.com/news/books-and-arts/21565142-how-america-bailed-out-banks-rather-its-citizens-crisis-mismanagement How America bailed out the banks rather than its citizens] ''The Economist''</ref><ref>[http://www.lewrockwell.com/rothbard/frb.html Fractional Reserve Banking], Murray Rothbard</ref> If this is correct, the destruction of economic capital in those countries adopting the Crony Capitalist model in response to the financial crisis will likely result in the descent into quasi-Third World status.<ref>[http://seekingalpha.com/article/309501-how-the-u-s-is-quickly-becoming-a-third-world-country-part-1 How the US is quickly becoming a Third World Country], Seeking Alpha</ref><ref>[http://www.lewrockwell.com/spl2/us-becoming-third-world.html 10 Signs the US is becoming a Third World Country]</ref><ref>[http://www.youtube.com/watch?v=qDKvSMZNgjc Peter Schiff Rips Paul Krugman on Economy]</ref><ref>[http://www.zerohedge.com/news/2013-07-24/guest-post-bankers-own-world Bankers Own the World]</ref>

===Libertarians, Austrians and commodity money===

[[Libertarians]] and [[Austrian School]] supporters envision a voluntary society of free markets (where banks - however large - are allowed to fail if they cannot perform their obligations),<ref>[http://www.zerohedge.com/news/2013-01-26/daniel-hannan-destroys-3-unquestionable-myths-our-crisis Daniel Hannan Oxford speech]</ref> small government<ref>[http://www.prudentbear.com/index.php/thebearslairview?art_id=10473 Models of Capitalism], Michael Hutchinson</ref> and the abolition of monopolistic legal tender laws,<ref>[http://mises.org/daily/5562/The-Real-Solution-to-the-Debt-Problem The Real Solution to the Debt Problem], David D'Amato</ref><ref>[http://lewrockwell.com/paul/paul766.html Legalize Currency Competition], Ron Paul</ref> allowing money backed by a ''free market''<ref>[http://www.lewrockwell.com/blog/lewrw/archives/94712.html Subcommittee Explores Sound Money]</ref><ref>[http://mises.org/daily/5562/The-Real-Solution-to-the-Debt-Problem The Real Solution to the Debt Problem], David D'Amato</ref> [[gold standard]] or [[silver standard]] to come back in circulation (or some other free market money system such as Bitcoin).<ref>[http://www.salon.com/2013/03/22/a_libertarian_nightmare_bitcoin_meets_big_government/ Bitcoin]</ref><ref>[http://lewrockwell.com/north/north1009.html Counterfeit Gold Standards], Gary North</ref><ref>[http://lewrockwell.com/orig11/krolman5.1.1.html Accidentally Conceived in 1971], Arthur M.M. Krolman</ref><ref>[http://www.marketoracle.co.uk/Article27532.html Why Monetary Expansion Must Stop], Patrick Barron</ref><ref>[http://www.marketoracle.co.uk/Article26339.html Silver and Opium], Antal E. Fekete</ref><ref>[http://www.marketoracle.co.uk/Article25212.html The Faults of FRB], Thorsten Polleit</ref> It should be noted that even a partial return to the gold standard (allowing foreign central banks to redeem US government bonds in US gold) would result in the gold price having to rise to approximately $20,000 per ounce.<ref>[http://www.zerohedge.com/news/2013-02-26/central-banks-cannot-create-wealth-only-liquidity Central Banks Cannot Create Wealth]</ref><ref>[http://www.youtube.com/watch?v=2rJspP6q3g8 Mike Maloney Interview with Max Keiser]</ref>

It must be emphasized that a ''necessary'' pre-condition in establishing a true free-market order would be the complete abolition of all legal tender laws<ref>[http://www.nysun.com/opinion/ron-paul-upping-the-ante-in-his-campaign/87502/ Ron Paul Upping the Ante]</ref> and the abolition of monopolistic central banking, including repeal of the [[Federal Reserve Act]] of 1913.<ref>[http://mises.org/daily/5562/The-Real-Solution-to-the-Debt-Problem The Real Solution to the Debt Problem], David D'Amato</ref><ref>[http://www.drschoon.com/articles%5CSilverGoldAndTheLastAmericanHeroJFK.pdf Silver, Gold and the Last American Hero JFK], Darryl Robert Schoon. Extracted quote from Ron Paul: "The United States Constitution grants to Congress the authority to coin money and regulate the value of the currency. The Constitution does not give Congress the authority to delegate control over monetary policy to a central bank. Furthermore, the Constitution certainly does not empower the federal government to erode the American standard of living via an inflationary monetary policy." Note: Another argument – that the power to "coin" money precludes issuance of paper money, and that the government must redeem paper money with "precious metal" – was dismissed as frivolous in ''Milam v. United States'', citing the Legal Tender Cases.</ref><ref>[http://www.lewrockwell.com/blog/lewrw/archives/73833.html End the Fed], Freedom Watch</ref><ref>[http://mises.org/daily/4860 Money: Sound and Unsound], Mark Thornton commentary on Joseph Salerno's book</ref><ref>[http://www.prudentbear.com/index.php/thebearslairview?art_id=10471 Gold Standard Renaissance?]</ref><ref>[http://www.marketoracle.co.uk/Article24632.html The Gold Standard Never Dies], [[Lew Rockwell]]</ref><ref>[http://www.prudentbear.com/index.php/thebearslairview?art_id=10471 Gold Standard], Michael Hutchinson</ref><ref>[http://mises.org/store/Money-Bank-Credit-and-Economic-Cycles-P290C0.aspx Money, Bank Credit and Economic Cycles], Jesus Huerta de Soto, Mises Institute ISBN: 978-1-933550-39-8</ref><ref>[http://radio.goldseek.com/griffin04.10.10.php Goldseek interview] with [[G. Edward Griffin]]</ref><ref>See also these [[Murray Rothbard]] articles: [http://www.mises.org/money.asp What Has Government Done to Our Money?], [http://www.mises.org/story/1829 The Case for the 100% Gold Dollar]; [http://www.lewrockwell.com/rothbard/cartelization.pdf The Fed as Cartel], [http://www.lewrockwell.com/rothbard/rothbard191.html Private Coinage], [http://www.lewrockwell.com/rothbard/rothbard190.html Repudiate the National Debt]; [http://www.lewrockwell.com/rothbard/rothbard181.html Taking Money Back], [http://www.lewrockwell.com/rothbard/rothbard163.html Anatomy of the Bank Run], [http://www.lewrockwell.com/rothbard/rothbard128.html Money and the Individual]</ref> "Capitalism" or "the free market" cannot be blamed or held responsible for current dire economic conditions given this coercive government prohibition against competition in currency creation.<ref>[http://mises.org/daily/5562/The-Real-Solution-to-the-Debt-Problem The Real Solution to the Debt Problem], David D'Amato</ref> Some Keynesians dismiss this desire to return to the gold standard by pointing out that financial crises occurred prior to the creation of the Fed.<ref>[http://www.pbs.org/newshour/businessdesk/2013/06/paul-krugman-on-why-david-stoc.html Paul Krugman Interview]</ref><ref>[http://www.frbsf.org/economic-research/publications/economic-letter/2013/may/crises-before-after-creation-fed/ Crises Before and After the Fed]</ref> Austrians counter by stating that such crises, although possibly less frequent, have been more severe and long-lasting ''after'' the creation of the Fed.<ref>[http://mises.org/daily/3466 ABCT]</ref> In addition even those "panics" which occurred prior to the creation of the Fed had monetary causes relating to fractional bank regulation and speculation.<ref>[http://mises.org/document/695/ Panic of 1819}</ref> Some Libertarians would also support experimentation with [[full reserve banking]],<ref>[http://mises.org/daily/4860 Money: Sound and Unsound], Mark Thornton commentary on Joseph Salerno's book</ref><ref>[http://mises.org/store/Money-Bank-Credit-and-Economic-Cycles-P290C0.aspx Money, Bank Credit and Economic Cycles], Jesus Huerta de Soto, Mises Institute ISBN: 978-1-933550-39-8</ref><ref>[http://www.mises.org/Books/mysteryofbanking.pdf Murray Rothbard, ''The Mystery of Banking'']</ref> recognizing that when fractional-reserve banking is combined with the gold standard a strong cyclical bias (and the systematic transfer of real wealth to the banking system) is normally inevitable.<ref>[http://mises.org/daily/5174/Life-with-the-Fed-Sunshine-and-Lollipops Life With The Fed], Thomas Woods</ref><ref>[http://mises.org/daily/5185/The-Need-for-100-Reserves The Need for 100% Reserves], Frank D. Graham</ref> Those Libertarians who support full reserve banking would strongly support more flexible and forgiving bankruptcy laws in a fractional reserve banking environment, recognizing that no stigma should be attached to bankruptcy given the anti-Libertarian "unjust acquisition" of real wealth implicit in central banking, compulsory legal tender laws, fractional reserve banking and taxation.<ref>[http://mises.org/daily/4860 Money: Sound and Unsound], Mark Thornton commentary on Joseph Salerno's book</ref><ref name="Repudiating the National Debt">[http://mises.org/article.aspx?Id=1423 Repudiating the National Debt], Murray Rothbard</ref><ref>[http://www.mises.org/Books/mysteryofbanking.pdf Murray Rothbard, ''The Mystery of Banking'']</ref><ref>[http://gonzalolira.blogspot.com/2010/12/want-to-ruin-your-own-country-assume.html Want to Ruin Your Country?]</ref>

In the absence of sound money, over time large private corporations become mere extensions of powerful government and banking fiat.<ref>[http://www.zerohedge.com/news/2013-04-03/david-stockman-keynesian-endgame The Keynesian Endgame], David Stockman</ref><ref name="death"/><ref>[http://mises.org/rothbard/newlibertywhole.asp For A New Liberty], Murray Rothbard</ref><ref>[http://news.goldseek.com/EuroCapital/1313178959.php The Fix is In], Peter Schiff</ref> David Stockman has stated the following:.<ref>[http://www.zerohedge.com/news/2013-04-03/david-stockman-keynesian-endgame The Keynesian Endgame], David Stockman</ref>

{{quote|It not only shows that the so-called recovery is tenuous and highly skewed to a small slice of the population at the top of the economic ladder, but also that statist economic intervention has now become wildly dysfunctional. Largely based on opulence at the top, Wall Street brays that economic recovery is under way even as the Main Street economy flounders. But when this wobbly foundation periodically reveals itself, Wall Street petulantly insists that the state unleash unlimited resources in the form of tax cuts, spending stimulus, and money printing to keep the simulacrum of recovery alive.}}

Libertarians such as Murray Rothbard argue that in such a toxic monetary environment resource allocation is perverted by some or all of the following factors: corrupt alliances between so-called "private corporations" (which are often extensions of government or banking interests) and regulators; increasingly intensive business structures to suit the needs of a concentrated and cartelized banking system; and the constant overriding of small communities and local government planning with central government directives to satisfy the needs of big business.<ref>[http://news.goldseek.com/EuroCapital/1313178959.php The Fix is In], Peter Schiff</ref><ref name="death"/> In such a corrupted monetary system, libertarians argue that financial and man-made environmental crises cannot legitimately be blamed on "private" corporations but rather blame must fall squarely on the true source of the problem - centralized government control of credit and money, which in turn dilutes private property rights (especially in relation to traditional owners and farmers) and creates massive distortions in scarce resource allocation, with financial ''and'' environmental crises being the predictable consequence.<ref name="death"/><ref>[http://mises.org/rothbard/newlibertywhole.asp For A New Liberty], Murray Rothbard</ref><ref>[http://maxkeiser.com/2011/06/11/ote114-on-the-edge-with-peter-schiff/ Peter Schiff Interview with Max Keiser]</ref><ref>[http://www.marketoracle.co.uk/Article29029.html Getting Used to Life without Food], F. William Engdahl</ref>

Regarding the current accumulation of government bonds and private debt, many Libertarians believe that the creation of the [[Federal Reserve System|Federal Reserve]] under the [[Federal Reserve Act]] of 1913 was unconstitutional and consider that at least some of this accumulated debt should be canceled or forgiven ''prior'' to a return to the gold standard in recognition of its fundamental illegitimacy.<ref>[http://www.zerohedge.com/news/guest-post-federal-debt-criminal-scam-federal-reserve-criminal-syndicate Federal Debt As Criminal Scam], Charles Hugh Smith</ref><ref>[http://www.marketoracle.co.uk/Article29433.html The Never-Ending Economic Depression], Washington Blog</ref><ref>[http://www.zerohedge.com/article/antal-feketes-open-letter-ron-paul-impeach-bernanke Antal Fekete's Letter to Ron Paul]</ref><ref name="Repudiating the National Debt"/><ref>[http://www.youtube.com/watch?v=1zMv4Offm_8&feature=player_embedded#at=1341 Max Keiser Interview with Alex Jones]</ref><ref>[http://www.zerohedge.com/news/guest-post-federal-debt-criminal-scam-federal-reserve-criminal-syndicate Federal Debt As Criminal Scam], Charles Hugh Smith</ref><ref>[http://blog.mises.org/18590/roubini-thoroughly-confused-by-austrian-economics/ Roubini Confused], Justin Ptak</ref> Arguably this would be supported by the "just acquisition" jurisprudence of legal philosopher [[Robert Nozick]] and Libertarian advocate [[Murray Rothbard]].<ref name="Repudiating the National Debt"/> As Murry Rothbard states:<ref>[http://angloaustria.blogspot.com/2010/05/quote-of-day-on-repudiation.html The Ethics of Liberty], Murray Rothbard</ref>

{{quote|Many libertarians fall into confusion on specific relations with the State, even when they concede the general immorality or criminality of State actions or interventions. Thus, there is the question of default, or more widely, repudiation of government debt. Many libertarians assert that the government is morally bound to pay its debts, and that therefore default or repudiation must be avoided. The problem here is that these libertarians are analogizing from the perfectly proper thesis that private persons or institutions should keep their contracts and pay their debts. But government has no money of its own, and payment of its debt means that the taxpayers are further coerced into paying bondholders. Such coercion can never be licit from the libertarian point of view. For not only does increased taxation mean increased coercion and aggression against private property, but the seemingly innocent bondholder appears in a very different light when we consider that the purchase of a government bond is simply making an investment in the future loot from the robbery of taxation.}}

In late 2010, financial commentator Max Keiser started the [[Buy Silver Crash JP Morgan Campaign 2010]] in an attempt to expose the flaws underlying the [[fractional reserve banking]] system.<ref>[http://www.youtube.com/watch?v=1zMv4Offm_8&feature=player_embedded#at=1341 Max Keiser Interview with Alex Jones]</ref><ref>[http://www.youtube.com/watch?v=_IKbAmsGey0&feature=player_embedded#at=66 Bob Chapman Silver Predictions]</ref><ref>[http://www.guardian.co.uk/commentisfree/2010/dec/02/jp-morgan-silver-short-selling-crash Want JP Morgan to crash? Buy silver], Max Keiser</ref>

Spontaneous protests against the Federal Reserve and the current financial system commenced in September 2011 across the United States and current protests can be found on the [http://www.occupytogether.org/ OccupyTogether.org] website.

====Free Banking and Full Reserve Banking====

On the issue of the required level of bank reserves, Austro-libertarians are sharply divided on the optimal solution to eliminate the price distorting and destructive forces inherent in fractional reserve banking.<ref>[http://www.thedailybell.com/29047/Anthony-Wile-Antal-Fekete-Gold-Backwardation-and-the-Collapse-of-the-Tacoma-Bridge Antal E Fekete]</ref><ref>[http://mises.org/journals/qjae/pdf/qjae13_4_2.pdf Fractional Reserve Free Banking: Some Quibbles], Philip Bagus and David Howden</ref><ref name="Cochran_Free">John P. Cochran. [http://mises.org/daily/4898 ''Free Banking''], ''Mises Daily'', review of ''Free Banking: Theory, History, and a Laissez-Faire Model'' by Larry Sechrest</ref><ref>[https://mises.org/journals/qjae/pdf/qjae15_2_3.pdf Against Monetary Disequilibrium Theory], Laura Davidson</ref>

Some Austrian scholars advocate "free banking", where banks are legally permitted to engage in fractional-reserve banking activities ''provided'' they comply with the standard laws against fraud and are not supported in any way against the possibility of bank runs and are forced into bankruptcy should they not be able to pay their debts as and when they fall due.<ref name="Cochran_Free" /> Provided depositors are clearly made aware that their demand deposits are being lent out and are not universally available for immediate withdrawal and provided there is no way in which such banks are propped up in the face of bank runs, free banking advocates do not support outlawing fractional reserve banking as embezzlement ''per se''.

Advocates of this system of banking include Lawrence White, Steven Horwitz, George Selgin, and Kevin Dowd, amongst others.<ref name="Cochran_Free" /> F.A. Hayek also advocated the de-nationalization of money production and implicitly supported a free banking financial system in some of his works on monetary reform.<ref>[http://www.mises.org/store/Free-Market-Monetary-System-A-P553.aspx?AFID=14 ''Free Market Money System''] by [[F.A. Hayek]]</ref>

Rothbardian-oriented Austrian scholars advocate "[[full reserve banking]]", considering fractional-reserve banking and the associated issuance of irredeemable paper money to be inherently fraudulent, unethical, unjust, disruptive and dysfunctional, akin to embezzlement and counterfeiting.<ref>[http://www.zerohedge.com/article/citizen-sues-atlanta-fed-based-allegation-its-issuing-federal-reserve-notes-it-has-no-intent Citizen Sues Atlanta Fed], ZeroHedge</ref><ref>[http://mises.org/journals/qjae/pdf/qjae13_4_2.pdf Fractional Reserve Free Banking: Some Quibbles], Philip Bagus and David Howden</ref><ref>See for example these [[Murray Rothbard]] articles: [http://www.mises.org/money.asp What Has Government Done to Our Money?], [http://www.mises.org/story/1829 The Case for the 100% Gold Dollar]; [http://www.lewrockwell.com/rothbard/cartelization.pdf The Fed as Cartel], [http://www.lewrockwell.com/rothbard/rothbard191.html Private Coinage], [http://www.lewrockwell.com/rothbard/rothbard190.html Repudiate the National Debt]; [http://www.lewrockwell.com/rothbard/rothbard181.html Taking Money Back], [http://www.lewrockwell.com/rothbard/rothbard163.html Anatomy of the Bank Run], [http://www.lewrockwell.com/rothbard/rothbard128.html Money and the Individual]</ref> [[Full reserve banking]] would require banks to retain in reserve all deposits that are legally available for immediate withdrawal, and permit lending only from longer-term deposits.

Advocates of this system of banking include [[Murray Rothbard]],<ref name="The Mystery of Banking">[http://www.mises.org/Books/mysteryofbanking.pdf ''The Mystery of Banking''], Murray Rothbard</ref><ref name="The Case for a 100% Gold Dollar">[http://mises.org/story/1829 The Case for a 100% Gold Dollar], Murray Rothbard</ref> [[Jesus Huerta de Soto]],<ref>[http://www.mises.org/books/desoto.pdf ''Money, Bank Credit, and Economic Cycles''], Jesus Huerta de Soto, First English edition (2006), pp. 98-114</ref> [[Jörg Guido Hülsmann]],<ref>[http://mises.org/media/4014 The Economics of Legal Tender Laws], and [[Jorg Guido Hulsmann]] (includes detailed commentary on [[central banking]], [[inflation]] and [[fractional reserve banking|FRB]])</ref><ref name=FBFB>[http://mises.org/journals/rae/pdf/RAE9_1_1.pdf Free Banking and the Free Bankers], Jörg Guido Hülsmann, Quarterly Journal of Austrian Economics (Vol. 9, No. 1)</ref><ref>[http://www.lewrockwell.com/lewrockwell-show/2011/01/04/181-hyperinflation-ahead/ Interview with Jörg Guido Hülsmann], The Lew Rockwell Show</ref> amongst others.<ref>[http://mises.org/journals/qjae/pdf/qjae13_4_2.pdf Fractional Reserve Free Banking: Some Quibbles], Philip Bagus and David Howden</ref><ref>[http://mises.org/daily/4880 The Faults of Fractional-Reserve Banking], Thorsten Polleit</ref>

Commentators David Stockman and Michael Shedlock also support the creation of full reserve postal savings banks that do not lend out money from checking accounts.<ref>[http://globaleconomicanalysis.blogspot.com.au/2013/04/stockman-fires-back-at-krugman-labeling.html David Stockman Fires Back At Krugman]</ref> According to Michael Shedlock:<ref>[http://globaleconomicanalysis.blogspot.com.au/2013/04/stockman-fires-back-at-krugman-labeling.html David Stockman Fires Back At Krugman]</ref>

<blockquote>And the solution is so easy too. Open a bank that charges nominal fees for checking and makes no loans. Such a bank would not need loan officers or other high-priced personnel. It would offer safekeeping of money and simple checking accounts for a fee.

Those who want interest on their money should have to take a risk, the risk of a possible loss.

Finally, and as I have pointed out before, lending of checking accounts is outright fraud. Checking accounts are supposed to be money available on demand, but since Greenspan authorized Sweeps in 1994, almost none of it is.</blockquote>

Most recently, in late 2010, two British MP's, Douglas Carswell and Steven Baker, sought to introduce legislation into the British Parliament that would allow depositors to decide if their money should be lent out and for what period.<ref>[http://www.telegraph.co.uk/finance/financetopics/financialcrisis/8004540/The-radical-reform-that-would-end-boom-and-bust-in-banking.html ''The Radical Reform in Banking''], Toby Baxendale, ''Daily Telegraph'', 15 Sept 2010</ref> If this legislative reform were to pass, British depositors would have the option to elect to save their money in full reserve bank accounts.

In early 2013, the idea of full reserve banking began to reappear in mainstream circles, after other "remedies" appeared to fail or only defer the next crisis, but not solve the banking "problem".<ref>[http://www.telegraph.co.uk/finance/comment/jeremy-warner/10107375/The-banking-revolution-that-would-wipe-out-Britains-debts.html Banking Revolution]</ref> Even some "establishment" economists such as Jeffrey Sachs has openly criticized unregulated fractional reserve banking, and called for a clear legislative division between heavily regulated and controlled liquidity-supplying high-reserve fractional reserve banking and open unprotected speculation, which would be subject to risk of bankruptcy.<ref>[http://www.youtube.com/watch?feature=player_embedded&v=7VOWnnEphjI Jeffrey Sachs audio]</ref>

Antal E. Fekete of the New Austrian School advocates return of real bills (which are self-liquidating debt) and criticizes the Rothbardian position opposing fractional reserve banking as impractical and ahistorical.<ref>[http://www.thedailybell.com/29047/Anthony-Wile-Antal-Fekete-Gold-Backwardation-and-the-Collapse-of-the-Tacoma-Bridge Antal E Fekete]</ref> He has stated:

<blockquote>The altercation between the American Austrians and the New Austrian School of Economics is a tragic waste of talent. We should settle our differences not by mud-slinging and by calling names, but through high level scientific debates... I sincerely hope that they accept and we can join forces in preparing the ground for the triumph of the gold standard after a brief reactionary period in history dominated by the regime of irredeemable currency.</blockquote>

====Market Money: Gold and Silver and Crypto-Currency====
In the absence of reform, many Austrians and libertarians are actively buying gold and silver and transferring savings to Bitcoin which cannot be created at the whim of governments.<ref>[http://goldinvestingnews.com/26510/peter-schiff-gold-money-fiat-currency-price-outlook-central-banks-investing.html Peter Schiff on Gold and Money]</ref><ref>[http://www.ronpaul.com/on-the-issues/fiat-money-inflation-federal-reserve-2/ Honest Money]</ref><ref>[http://www.lewrockwell.com/paul/paul125.html Fiat Paper Money], Ron Paul</ref><ref>[http://www.mogamboguru.com/writings.html Mogambo Guru]</ref><ref>[http://www.youtube.com/watch?v=O2rsQhsTTbE Max Keiser on Bitcoin]</ref> Many Austrians believe gold and silver and other essential commodities are ideal investments during this period of fiat money expansion and experimentation, as no government in the history of the world has ever escaped economic catastrophe and debasement of the currency after adopting a pure fiat money<ref>[http://historysquared.com/2012/06/26/fiat-currencies-trend-towards-their-intrinsic-value-often-rather-quickly/ Fiat Currencies Trend Towards Their Intrinsic Value]</ref><ref>[http://www.zerohedge.com/news/2013-04-05/guest-post-more-monetary-quackery More Monetary Quackery]</ref><ref>[http://goldinvestingnews.com/26510/peter-schiff-gold-money-fiat-currency-price-outlook-central-banks-investing.html Peter Schiff on Gold and Money]</ref><ref>[http://www.ronpaul.com/on-the-issues/fiat-money-inflation-federal-reserve-2/ Honest Money]</ref><ref>[http://www.lewrockwell.com/paul/paul125.html Fiat Paper Money], Ron Paul</ref><ref>[http://www.professorfekete.com/articles/AEFFiatMoneyInDeathThroes.pdf Fiat Money in Death Throes], Antal E Fekete</ref><ref>[http://www.professorfekete.com/articles%5CAEFAmericanBasesGermanyGoldBasis.pdf American Bases], Antal E Fekete]</ref> and keeping money in bank deposits is becoming increasingly risky as governments renege on promises to keep depositors' money safe.<ref>[http://truthingold.blogspot.com.au/2013/04/the-frightening-truth-about-cyprus-bail.html?showComment=1365106177301 The Truth About the Cyprus "Bail In"]</ref><ref>[http://www.zerohedge.com/news/2013-04-02/ron-paul-great-cyprus-bank-robbery The Great Cyprus Bank Robbery], Ron Paul</ref>

===Neo-Chartalism and Modern Monetary Theory===

Neo-Chartalists and associated advocates of Modern Monetary Theory (MMT) also accept that the current bank-dominated monetary system is dysfunctional, but advocate reform ''within'' the strictures of a fiat monetary system rather than looking to return to a commodity-based monetary system.<ref>[http://www.cnbc.com/id/45795986/Modern_Monetary_Theory_and_Austrian_Economics Modern Monetary Theory and Austrian Economics], John Carney</ref>

Most advocates of MMT support deficit spending to support the economy, believing governments can never go bankrupt in a fiat monetary system.

Austrians and sound money advocates criticize supporters of MMT not in their description of the current monetary system (which many Austrians consider reasonably accurate) but for their "shallow" understanding of the dangers of unfettered government spending through fiat money creation and their "naive" support of deficit spending and inflationary policies as an "easy" way out of economic crises.<ref>[http://www.soundmoneyproject.org/?p=4881 The Upside-Down World of MMT], Robert Murphy</ref><ref>[http://www.zerohedge.com/news/sean-corrigan-crucifies-mmt Sean Corrigan Crucifies MMT], ZeroHedge.com</ref>

===Debt-free fiat money===

The concept of debt-free money is most notably represented by [[Michael Rowbotham]], [[Stephen Zarlenga]] of the American Monetary Institute, Bill Still producer of the well-known ''[http://www.youtube.com/watch?v=JXt1cayx0hs Money Masters]'' videos and [[Ellen Hodgson Brown]].<ref>[http://www.youtube.com/watch?v=6MKjlPmVVK4 Bill Still on gold reserves]</ref> They advocate various forms of "pure" fiat money issuance by government, without the need for the government to issue a bond to print or issue the fiat money. More recently, mainstream economists have begun to seriously consider the issuance of debt-free money as a policy solution to the current ongoing crisis.<ref>[http://blogs.reuters.com/anatole-kaletsky/2013/02/07/a-breakthrough-speech-on-monetary-policy/ A Breakthrough Speech on Monetary Policy], Anatole Kaletsky</ref><ref>[http://krugman.blogs.nytimes.com/2013/01/07/be-ready-to-mint-that-coin/ Be Ready To Mint That Coin], Paul Krugman</ref><ref>[http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/9970294/Helicopter-QE-will-never-be-reversed.html Helicopter QE will never be reversed], Ambrose Evans-Pritchard</ref>

Currently virtually all money issued in modern economies is initially sourced from debt; in other words, it is "debt money" because it is created via some entity (government or business or individuals) borrowing fiat money into existence and the money being created by a bank before it is spent by the government or by a business or by an individual. "Debt money" is therefore money created in parallel with debt or [[Credit (finance)|credit]] via the process of [[fractional reserve banking]] or the issuance of a bond from the central bank.

"Debt-free money" is a "true" or "pure" fiat currency issued by the [[Treasury]] of a [[central government]], where there is no requirement for its eventual return as a condition of its creation (except by way of payment of taxes).<ref name="death"/> It is argued by Rowbotham and others that this would allow for the substantial lowering of tax rates, would allow public works projects to be funded cheaply, and would stimulate economic development, if the fiat money is spent sensibly on inflation-lowering long-term capital projects.<ref name="death"/>

[[Michael Rowbotham]] seeks the cancellation of "unjust" debts (such as [[third world debt]]), and, crucially and most importantly, a [[social security]] [[safety net]] involving a guaranteed minimum [[social credit|debt-free income]] (sourced from government-issued debt-free money independent of any central bank) for all citizens in the debt-based economy. Under this proposal, every adult citizen would be given a livable debt-free income transferred electronically into their [[bank account]], simply by virtue of their [[citizen]]ship. They could then use this debt-free money to pay off their [[mortgage]]s or to live, debt-free, without being compelled to work as a [[wage slavery|wage slave]] in the market economy if they chose not to. The government would finance these payments simply by ordering the private banks to accept their electronic instructions as legal tender. It would therefore not result in the expansion of [[government debt]].<ref name="death"/>

Ex-U.S. Treasury Department analyst Richard C. Cook also supports the issuance of debt-free money and zero-interest credit by the central government and has provided a detailed blueprint of monetary reform recommendations to transition to a debt-free money supply.<ref name="marketoracle.co.uk"/>

Some commentators have speculated that the issuance of massive amounts of debt-free pure fiat money is already happening, and we are currently living in a massive money printing experiment, as so-called "quantitative easing" will never be reversed.<ref>[http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/9970294/Helicopter-QE-will-never-be-reversed.html Helicopter QE will never be reversed], Ambrose Evans-Pritchard</ref> Ambrose Evans-Pritchard has warned:<ref>[http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/9970294/Helicopter-QE-will-never-be-reversed.html Helicopter QE will never be reversed], Ambrose Evans-Pritchard</ref>

{{quote|If Lord Turner's helicopters are ever needed, we can be sure that the Anglo-Saxons and the Japanese will steal a march, while Europe will be the last to move. The European Central Bank will resist monetary financing of deficits until the bitter end, knowing that such action risks destroying German political consent for the euro project.

By holding the line on orthodoxy, the ECB will guarantee that Euroland continues to suffer the deepest depression. Once the dirty game begins, you stand aside at your peril.

A great many readers in Britain and the US will be horrified that this helicopter debate is taking place at all, as if the QE virus is mutating into ever more deadly strains.

Bondholders across the world may suspect that Britain, the US and other deadbeat states are engineering a stealth default on sovereign debts, and they may be right in a sense. But they are warned. This is the next shoe to drop in the temples of central banking.}}

====Properties====
According to its proponents, government-issued debt-free fiat currency (such as debt-free notes and coins) can circulate perpetually in the economy as "stable" money and although not as secure as [[hard currency]], government-issued debt-free notes and coins (such as United States Notes and silver certificates) do not have the same effects of debt-based money (which require pertpetual interest payments to be tied to the creatin of new money).<ref>[http://www.entrewave.com/freebooks/docs/a_pdfs/gnhm.pdf Honest Money]</ref> It should be noted however that fiat currency can be a source of [[hyperinflation]] if its production is not controlled, as the government has the potential to issue unlimited amounts of fiat currency - ''provided'' it is accepted as "money" by the private banking system.<ref>[http://mises.org/books/shorthistorypapermoney.pdf A Short History of Paper Money in the United States], William M. Gouge, Mises Institute</ref> Notably, the Federal Reserve reportedly threatened not to recognize the trillion dollar platinum coin should the Obama Administration try to mint one.<ref>[http://www.buzzfeed.com/zekejmiller/the-trillion-dollar-coin-was-killed-by-the-fed Trillion Dollar Coin Killed By Fed]</ref><ref>[http://webofdebt.wordpress.com/2013/01/18/the-trillion-dollar-coin-joke-or-game-changer/#more-5323 The Trillion Dollar Coin], Ellen Hodgson Brown</ref> Debt-free notes and coins in circulation (being defined as [[Money supply#M0|M0]]) now account for a tiny fraction of the total debt-based M3 [[money supply]] in all modern debt-based economies (and debt-free M0 is also generally less than 10% of the total [[Money supply#M2|M2]] money supply in most developed economies).<ref>[http://www.dollardaze.org/blog/?post_id=00216 Global Money Supply Ratios]</ref>

Instead of [[money]] being created "indirectly" and "furtively" at the point of loan creation by the private banking system, with periodic bailouts to already-rich bankers and a "boomerang" boom-bust cycle as debt levels expand and contract, this debt-free "pure fiat" money would be created directly and openly by the democratically elected government and permanently issued to its citizenry by way of instruction to the private banking system. An example would be the coining of a trillion dollar platinum coin by the US government to pay off some of the Federal debt and continue its deficit spending in times of recession or depression. There would be no requirement for this money to returned (plus interest) and be extinguished as a condition of its creation, which is the central feature of all debt money systems.

Michael Rowbotham argues that this system of "debt-free" money issuance would not dramatically raise consumer prices (or at least would not be as inflationary or as dysfunctional as the current compounding debt-based system). He argues that this would also reduce overconsumption and the associated environmental damage associated with debt-based consumerism. It would also give individuals the free time to engage once again in non-marketable religious, artistic and recreational activities if they chose to do so.<ref name="death"/>

It is acknowledged that, in the absence of tax rates which ensure the return of this "pure" fiat to government coffers, this would be "inflationary" in the traditional sense, but proponents of debt-free fiat money issuance argue that if this "pure" government spending is directed to capital works projects and other long-term projects, this "pure" fiat money issuance would not result in excess price inflation, although it would dramatically increase base money. Michael Rowbotham argues that if bank reserve and capital ratios were increased and bank regulations on derivatives were imposed ''at the same time'' as the increase in "pure" base money was occurring, the two policies would balance each other out and no appreciable price inflation would be felt by the public at large.<ref name="death"/> The increase in base money would be inflationary, but the increase in reserve requirements would be deflationary, resulting in no significant net increase in the total money supply (assuming the government was sufficiently skilled in balancing these forces through the transition to a predominantly debt-free monetary system).

It is to be expected that these policies would be violently opposed by the private banking "elite", as it would render impotent their control over the money supply, dissipating this crucial decision-making power away from its current power base, from private banks to elected governments.<ref>[http://www.thenewamerican.com/economy/economics/item/14238-obama%E2%80%99s-trillion-dollar-coin-exposes-federal-reserve-scam Obama’s Trillion-Dollar Coin Exposes Federal Reserve Scam], Alex Newman, ''New American''</ref><ref>[http://webofdebt.wordpress.com/2013/01/18/the-trillion-dollar-coin-joke-or-game-changer/#more-5323 The Trillion Dollar Coin], Ellen Hodgson Brown</ref> It would also be likely to reduce [[economic growth]], dramatically increase the cost of labor and, potentially, result in an exacerbation of price inflation and malinvestment.<ref>[http://globaleconomicanalysis.blogspot.com/2010/12/fatally-flawed-end-fed-proposal-from.html Fatally Flawed End the Fed Proposal], MISH</ref> However, Rowbotham, Zarlenga and Still all argue that this proposal would address the problem of inequality inherent in a debt-based monetary system and reduce the devastating impact of personal [[bankruptcy]] and allow individual citizens to quickly recover from financial hardship.<ref name="death"/> They also argue that this social security measure (and government spending in general) would not have to be paid for by future generations from future streams of [[income tax]].<ref name="death"/>

====Criticism of "Greenbacker" debt-free money issuance====
In late 2010, [[Ellen Hodgson Brown]] and Austrian School commentator [[Gary North]] engaged in an intense debate over the direction of [[monetary reform]], with gold-standard supporter [[Gary North]] accusing Brown of going down a path that inevitably leads to the economics of fascism and hyperinflation.<ref>[http://www.lewrockwell.com/north/north908.html Criticism of Ellen Hodgson Brown]</ref><ref>[http://www.lewrockwell.com/north/north912.html Ellen Betrays], Gary North</ref> Government deficit spending funded with either paper money or compliant public bank lending is not a substitute for private consumption due to the inability of coercive goverment to invest rationally long-term, given the [[economic calculation problem]] inherent in socialized economies and the interests of governments and politicians being very different from the average consumer.<ref>[http://dailyreckoning.com/downside-after-the-returns-stop-diminishing-part-ii/ Nazi Germany], Bill Bonner</ref> North argues that it is not possible to trust a coercive, non-market entity - government - to limit its spending in circumstances where pure fiat money is in the hands of politicians and that [[inflation]], being an invisible tax, is much harder to resist than regular taxes. Greedy, corrupt, short-sighted politicians could buy off special interest groups to get elected and the general public could only watch on the sidelines as the purchasing power of their dollars steadily declines; this decline would be blamed on currency speculators and eventually foreign currencies (including "natural" monies such as gold and silver and copper) would have to be banned and confiscated from the public to ensure continued use of depreciating fiat.<ref name="North_Congress">Gary North. [http://www.garynorth.com/public/7030.cfm "Economic Error #15: Congress Can Safely Be Trusted to Manage the Money System Without Any Price Inflation."]. Referenced 2011-02-24.</ref> The fundamental error of Brown's analysis, according to North, is that Brown expects the source of the problem - corrupt governments bought and paid for by bankers - to be the source of the solution. She calls for a move away from war spending, whilst recoginizing that the current fiat monetary system favors government spending on war.<ref>[http://www.marketoracle.co.uk/Article28831.html More Efficient Ways to Stimulate Economy], Ellen Hodgson Brown</ref> To date, she has yet to reconcile these inconsistencies in her writings.

[[Mike Shedlock]] agrees with the abolition of fractional reserve banking, but criticizes the concept on similar grounds as North. Commenting on a bill to end the Fed introduced by Representative [[Dennis Kucinich]], he wrote: "Neither sound money nor the free market comes from printing money into existence. Arguably the only thing worse than the Fed printing money out of thin air is Congress printing money out of thin air for the purpose of full employment and/or any other absurd ideas Congress has."<ref>[http://www.marketoracle.co.uk/Article25175.html Kucinich's End the Fed campaign fatally flawed], Mike Shedlock.</ref>

Peter Schiff also believes getting rid of the Fed and returning money issuance to Congress would be worse than the current system.<ref>[http://www.youtube.com/watch?v=kEDmj3qocag Doug Casey Interview with Peter Schiff]</ref>

Austrians criticize leftists' inability to see that printing money and government spending is not the same as voluntary spending by private individuals as government spending distorts the capital structure; does not result in lasting economic growth due to the [[economic calculation problem]]; and is not subject to normal cautious profit and loss considerations given that the government can continually recover from errors by simply printing the money it spends.<ref>[http://www.marketoracle.co.uk/Article28831.html More Efficient Ways to Stimulate Economy], Ellen Hodgson Brown</ref><ref>[http://www.youtube.com/watch?v=qDKvSMZNgjc Peter Schiff Rips Paul Krugman]</ref> They also avoid or ignore the fact that historically governments have often acted in their own self-interest and concentrated power in themselves and their corrupt associates and families rather than benignly ruling for the benefit of the populace and their long-term interests. Every sovereign - without exception - that has been given the unfettered power to print fiat money has eventually printed too much debt-free money and in the end had to ban competing currencies (such as foreign currency or metallic money), and face revolt, revolution, hyperinflation or other social catastrophe.<ref>[http://www.marketoracle.co.uk/Article39762.html Fiat Currency Collapse]</ref>

====Debt-free money issuance: Support from free market Austrians====
In contrast to Gary North's attacks on "Greenbacker" Ellen Hodgson Brown, and Mike Shedlock's criticism of debt-free money printing by Congress as the worst of all choices, noted Austrian monetary economist Joseph Salerno has voiced his support for the idea of debt-free money issuance ''in comparison to the current debt-based system'', if a choice is to be made between the two.<ref>[http://www.mises.org/daily/6350/The-Flipside-of-the-Trillion-Dollar-Coin The Flipside of the Trillion Dollar Coin]</ref> In his defense of the trillion dollar coin idea, he states the following:<ref>[http://www.mises.org/daily/6350/The-Flipside-of-the-Trillion-Dollar-Coin The Flipside of the Trillion Dollar Coin]</ref>

{{quote|Let me be clear: my intention is not to deny that the trillion-dollar coin is a ludicrous and dangerous idea; it is rather to point out that the Fed is a more ludicrous and dangerous idea.}}

In relation to the "dangers" of Congressional control of the money supply, Salerno responds as follows:<ref>[http://www.mises.org/daily/6350/The-Flipside-of-the-Trillion-Dollar-Coin The Flipside of the Trillion Dollar Coin]</ref>

{{quote|Obviously, congressional control of the fiat money supply is far from the ideal monetary system, which involves the complete separation of government and money through the establishment of a commodity money, such as gold, the supply of which is determined exclusively by market forces. Nonetheless, there is much merit in replacing the opaque and pseudo-scientific control of "the money supply process" by the entrenched bureaucrats of the Fed with overtly political control of money by elected officials and partisan Administration appointees.}}

Salerno outlines a number of advantages of "simple inflation" over the current debt-based round-about system of money creation:<ref>[http://bastiat.mises.org/2013/05/bring-on-the-helicopter-money-and-gut-the-fed/ Bring on the Helicopter Money - and Gut the Fed], Joseph Salerno</ref>

{{quote|...as a permanent policy, it would be a wonderful device for wresting control of monetary policy from un-elected, secretive, and pseudo-scientific Fed bureaucrats and placing it under a Congress subject to popular scrutiny and elections. Of course this would not be an ideal system, which would be a hard money consisting of a market supplied commodity like gold. But it would have a number of significant advantages over the present Fed-dominated system. First, as just noted, money creation by Congress would be far more transparent and understandable to the public than the arcane procedures by which the Fed expands the money supply. Second, the injection of new money directly into the economy via government purchases of goods and services would avoid the continual and systematic distortion of financial markets and the interest rate currently caused by Fed open market operations. This process of “simple inflation” as Mises called it would, therefore, certainly produce rising prices but would not generate business cycles of recurring booms and busts. Finally, the Fed could no longer operate as a bailer-outer of last resort, surreptitiously bailing out gigantic domestic and foreign financial institutions in the absence of discussion and consent by Congress and the knowledge of the public.}}

===Public Fractional Reserve Banks===

[[Ellen Hodgson Brown]] supports nationalization of the private banking system once the full losses on the banks' portfolios are recognized.<ref>[http://www.huffingtonpost.com/ellen-brown/restoring-economic-sovere_b_823697.html Restoring Economic Sovereignty], Ellen Hodgson Brown</ref><ref>[http://www.webofdebt.com/articles/new_theory.php Time for a New Theory of Money]</ref><ref>[http://globaleconomicanalysis.blogspot.com/2011/01/steve-keen-responds-to-world-economic.html Exponential Growth], MISH</ref><ref>[http://www.webofdebt.com/articles/force_nationalization.php Foreclosuregate could force bank nationalization]</ref><ref>[http://webofdebt.wordpress.com/2010/12/22/austerity-fails-in-euroland-time-for-some-%e2%80%9cdeficit-easing%e2%80%9d/ Austerity Fails in Europe], Ellen Hodgson Brown</ref> Ellen Hodgson Brown has repeatedly called for the creation of publicly-owned banks similar to the North Dakota model, where the interest earned by these state government-owned banks could be ploughed back into local economies financing public works and local government services instead of being sucked out of local communities into the major commercial banks.<ref>[http://www.marketoracle.co.uk/Article29338.html Why Aren't Banks Lending], Ellen Hodgson Brown</ref> <ref>[http://www.marketoracle.co.uk/Article39053.html Why Bankers Rule the World]</ref> She has cited numerous historical examples where public banks worked successfully for many decades, including in Australia and Costa Rica, as examples of the viability and benefit of public fractional reserve banks.<ref>[http://www.webofdebt.com/articles/commonwealth_bank_aus.php CBA]</ref><ref>[http://www.truthdig.com/report/item/public_banking_in_costa_rica_a_remarkable_little-known_model_20131111 Costa Rica]</ref>

Brown also supported "[[Quantitative easing|QE2]]" - which she described as a necessary and desirable funding of government spending via money printing rather than by the indirect means of issuing of interest-bearing government bonds, which simply allows private bankers to profit from costless money creation.<ref>[http://www.marketoracle.co.uk/Article24443.html QE2 and the Looming Threat of a Crippling Debt Service]</ref><ref>[http://www.marketoracle.co.uk/Article24719.html QE2 and Hyperinflation], Ellen Hodgson Brown</ref>

Many monetary reformers who call on the government to take back the money creation function from debt-supplying private for-profit banks also call for full reserve banking to remove the bank's alleged "embezzlement" and "counterfeiting" abilities.<ref>[http://www.thenewamerican.com/economy/economics/item/14238-obama%E2%80%99s-trillion-dollar-coin-exposes-federal-reserve-scam Obama’s Trillion-Dollar Coin Exposes Federal Reserve Scam], Alex Newman, ''New American''</ref><ref name="marketoracle.co.uk"/><ref>[http://www.monetary.org/ AMI website, calling on full-reserve banking]</ref>

It should be noted that if Austrian claims that [[fractional reserve banking]] produces [[Austrian business cycle theory|business cycles]] is correct, public ownership of banks will not stop periodic economic crises and business cycles from occurring, ''unless'' strong controls and very high reserve ratios are imposed on all banks. Many would consider this "solution" of publicly-owned fractional reserve banks merely perpetuating the problem.

Stephen Zarlenga's AMI organization has strongly criticized Brown's support of fractional reserve banking as perpetuating the very problems she seeks to solve. Jamie Walton, from the AMI, wrote the following review:<ref>[http://www.monetary.org/review-of-ellen-browns-the-web-of-debt/2010/12/ Review of Web of Debt], Jamie Walton</ref>

{{quote|Brown’s plan to takeover (rescue?) the big banks to continue a “fraud” within the safety of government is totally wrong. Placing the “fraud” in government doesn’t make it right, but might make it harder to stop. Does Brown realize that her statements and conclusions are inconsistent, and that what she proposes leads to exactly the same things that she’s claiming to be opposed to?

Experience shows that if the issue of money is unduly affected by commercial incentives, then, over time, “commercial loans” (i.e., debt) will dominate over more direct methods of issue. So we’d be kept in exactly the same position we’re in now: within a totally unnecessary, ever-growing and impossible-to-pay debt trap.

Obviously the sensible action to take is to remove the “fraud” and debt and retain a healthy and competitive banking sector. This is easily done with a law based on the existing provisions in the U.S. Constitution.

But Brown avoids this obvious solution and instead advocates that our government gets into banking.

It seems incredible that Brown is now advocating what she’s described throughout most of the book as fraud, counterfeiting and Ponzi, pyramid or ‘smoke-and-mirrors’ schemes. Why? Perhaps the answer lies in Brown’s apparent confusion and/or fundamental misunderstandings about the nature of money and the role of government in society, and about monetary history and monetary reform.}}

===Left-leaning ideas===
The highly successful "Icelandic Solution" of debt relief for the poor and criminal sanctions against corrupt bankers was implemented by a left-wing government<ref>[http://www.zerohedge.com/news/2013-01-26/only-3-minutes-worth-listening-davos Interview with Iceland's President Olafur Ragnar Grimson]</ref> although some question whether the policies truly reflected left-wing ideas given the constraints on Icelandic policy-making at the time.<ref>[http://reason.com/blog/2012/04/17/why-iceland-presidents-left-wing-critiqu Why Iceland President Left-Wing Critique is Right], ''Reason''</ref>

Some left-leaning [[social democrats]] would also support additional longer-term measures such as ''raising'' minimum wages immediately after a financial crisis (rather than reducing wage rates - which they argue only prolongs the depression through reduced spending), taxing the banking system and the implementation of strongly redistributive income and [[land tax]]es to ensure the financially dispossessed are "replenished" with income. They would also support a [[social security]] [[safety net]] involving the provision of unemployment benefits and government-supplied free medical care, education and other essential services and [[public goods]].<ref>[http://www.youtube.com/watch?v=g4yVhxDTom0 Steve Keen interview with Max Keiser]</ref> It is to be expected however that this coercive regulatory regime would result in the systematic destruction of the entrepreneurial class as profits are squeezed by rising costs. In addition, without the issuance of debt-free [[fiat currency]] the result of these programs would be the persistent, exponential, accumulation of [[government debt]], financed by the [[private banking]] system by the issuance of [[government bonds]]. If not properly managed, this could result in a progressively higher tax burden and may result in higher [[interest rates]] in the long term, as financiers require higher [[interest rates]] to lend to the increasingly indebted central government. Without the issuance of [[debt-free money]] these policies can be self-defeating, with the net result simply being that a larger stream of guaranteed income goes to the [[private bank]]ing system via the issuance of interest-bearing [[government bonds]] (which are purchased by the [[private banks]] "out of nothing" through [[fractional reserve banking]] techniques). This [[government debt]] must then be financed in perpetuity by compulsorily acquired [[tax]]es from future generations.

It could be argued that the early success of extreme so-called "right-wing" (but socialist government-guided) [[fascism]] in [[Nazi Germany]] and [[Italy]] in the period after [[World War I]] was a response to the economic chaos created by the debt-based monetary system in early 20th century [[Europe]]. Some of the economic policies introduced by [[Hitler]] and [[Mussolini]] were in direct response to the economic collapse and social [[anarchy]] caused by soaring government and personal debt levels in both countries in the post-[[Versailles Treaty]] era, and (indirectly) arose from the writings of [[Silvio Gesell]] and others on the nature of the problems associated with a debt-based [[monetary system]]. Although many [[historian]]s justifiably criticize many of the non-economic policies of the [[fascist]] governments of [[Germany]] and [[Italy]] during this period, the [[economics of fascism]] seemed to provide a degree of [[prosperity]] to the populace, and arguably achieved the government's stated objective of restoring economic and social order during the pre-[[World War II]] era.<ref>[http://www.webofdebt.com/articles/bankrupt-germany.php How a Bankrupt Germany Solved its Economic Problems], Ellen Hodgson Brown</ref> These economic policies and their results are the subject of vigorous debate even today.<ref name="North_National_Great">Gary North. [http://www.garynorth.com/public/7009.cfm "Historical Error #27: Hitler's National Socialist Economic Policies Ended the Great Depression in Germany."], ''GaryNorth.Com''. Referenced 2011-02-24.</ref> (See also [[Inflation in Nazi Germany]].)

Similarly it could be argued that [[socialism]] and [[communism]] were movements inspired by the inequalities caused by the intense (and in [[Karl Marx]]'s view unsustainable) concentrations of monetary wealth, power and influence inherent in the practice of [[fractional reserve banking]] in a [[laissez-faire]], [[monopoly]] [[capitalist]] environment (particularly when [[fractional reserve banking]] is combined with a [[gold standard]] or other [[hard currency]] [[monetary system]]).<ref>[http://www.zerohedge.com/news/2013-11-07/marc-faber-warns-karl-marx-was-right Karl Marx Was Right], Marc Faber</ref><ref>[http://www.nakedcapitalism.com/2009/02/steve-keen-roving-cavaliers-of-credit.html ''Roving Cavaliers of Credit'', Steve Keen, with commentary from Yves Smith at Naked Capitalism]</ref>

The [[communist]]/[[socialist]] solution to the problem of [[fractional reserve banking]] is simple: re-enfranchising workers through widespread organization and unionism, complete removal (and if necessary, violent non-democratic removal) of the allegedly "parasitic" financial, capitalist and upper classes, wholesale repudiation of [[government debt]] resulting in complete debt [[default]]; forced [[expropriation]] of [[land]] and wealth from the [[upper classes]] to the dispossessed and needy [[working classes]]; [[nationalization]] of the [[private banks]] (which has required armed [[coup]]s by the [[military]] in some past [[revolution]]s); and the return of the banking function from a dominant, speculative to a subordinate, administrative institution, where the banking system is reduced to a subservient arm of the centralized [[Leviathan]].<ref>[http://www.zerohedge.com/news/2013-11-07/marc-faber-warns-karl-marx-was-right Karl Marx Was Right], Marc Faber</ref> In this system, government-owned banks are directed by government policy; often provide different kinds of loans to different industry sectors at different interest rates depending on the perceived "needs" of the economy and the community; normally have a significant proportion of [[non-performing loan]]s due to weak or non-existent [[bankruptcy]] laws; and periodically "forgive" failed debts in recognition of the impossibility of some businesses in paying this debt money back. In addition, individuals are prohibited from possessing large property holdings, in excess of their individual needs.

It is to be expected that the [[profitability]] of the government-owned banking system would be more stable - but dramatically lower - than that in a debt-based [[capitalist]] economy. It is also to be expected that a significantly higher misallocation of resources could occur in this system, where lending decisions are "infected" by political considerations and are not made on the basis of expected [[return on investment]]. The risk of [[corruption]] in the banking system is also expected to be higher where there is no separation between the political and monetary systems in an economy. Market-oriented [[monetary reform]]ers and [[neo-classical]] economists therefore do not support [[nationalization]] of the [[private banking]] system.

It should be noted that partial [[nationalization]] of the [[private bank]]ing system would only be temporary, as any remaining [[private banks]] could still engage in unlimited [[fractional reserve banking]] and facilitate the eventual acquisition and control of any strategic assets in a partially socialized economic system. It is to be expected that in the absence of complete [[nationalization]] of the banking system, the [[private bank]]ing system would eventually dominate the financial system in any nominally [[socialist]] society.

==Corporatism, Crony Capitalism and Confiscation==
Assuming current trends continue, "Corporatism",<ref>[http://www.lewrockwell.com/2010/04/ron-paul/dont-call-obama-a-socialist/ Corporatism], Lew Rockwell</ref> "Rigged Market Capitalism",<ref>[http://maxkeiser.com/tag/rigged-market-capitalism/ Rigged Market Capitalism]</ref> or so-called "Crony Capitalism"<ref>[http://mises.org/daily/6540/The-American-Economy-is-Not-a-FreeMarket-Economy Crony Capitalism in America]</ref><ref>[http://www.zerohedge.com/news/2013-02-10/guest-post-note-fed-giving-banks-free-money-wont-make-us-hire-more-workers Note To Fed]</ref> will continue.<ref>[http://www.youtube.com/watch?v=zbQq33iTsrw Rigged bank rates]</ref> This means superficial respect for property rights but periodic confiscation when deemed necessary by a government-banker cabal who consider themselves above [[natural law]].<ref>[http://www.zerohedge.com/news/2013-09-18/why-obama-allowed-bailouts-without-indictments Why Obama Allowed Bailouts]</ref> This implies ongoing "immunity" for market manipulating banks on the basis that they are "too big to jail",<ref>[http://moneymorning.com/2012/12/28/too-big-to-jail-its-a-dark-day-for-the-rule-of-law/ Too Big To Jail]</ref><ref>[http://www.rollingstone.com/politics/news/gangster-bankers-too-big-to-jail-20130214 Gangser Bankers: Too Big to Jail], Matt Taibbi. Extract: 'At HSBC, the bank did more than avert its eyes to a few shady transactions. It repeatedly defied government orders as it made a conscious, years-long effort to completely stop discriminating between illegitimate and legitimate money. And when it somehow talked the U.S. government into crafting a settlement over these offenses with the lunatic aim of preserving the bank's license, it succeeded, finally, in making crime mainstream. UBS, meanwhile, was a similarly elemental case, in which the offenses didn't just violate the letter of the law – they threatened the integrity of the competitive system. If you're going to let hundreds of boozed-up bankers spend every morning sending goofball e-mails to each other, giving each other superhero nicknames while they rigged the cost of money (spelling-challenged UBS traders dubbed themselves, among other things, "captain caos," the "three muscateers" and "Superman"), you might as well give up on capitalism entirely and just declare the 16 biggest banks in the world the International Bureau of Prices. Thus, in the space of just a few weeks, regulators in Britain and America teamed up to declare near-total surrender to both crime and monopoly. This was more than a couple of cases of letting rich guys walk. These were major policy decisions that will reverberate for the next generation. Even worse than the actual settlements was the explanation Breuer offered for them. "In the world today of large institutions, where much of the financial world is based on confidence," he said, "a right resolution is to ensure that counter-parties don't flee an institution, that jobs are not lost, that there's not some world economic event that's disproportionate to the resolution we want." In other words, Breuer is saying the banks have us by the balls, that the social cost of putting their executives in jail might end up being larger than the cost of letting them get away with, well, anything. This is bullshit, and exactly the opposite of the truth, but it's what our current government believes. From JonBenet to O.J. to Robert Blake, Americans have long understood that the rich get good lawyers and get off, while the poor suck eggs and do time. But this is something different. This is the government admitting to being afraid to prosecute the very powerful – something it never did even in the heydays of Al Capone or Pablo Escobar, something it didn't do even with Richard Nixon. And when you admit that some people are too important to prosecute, it's just a few short steps to the obvious corollary – that everybody else is unimportant enough to jail. An arrestable class and an unarrestable class. We always suspected it, now it's admitted.'</ref> and the continued collusion of central banks with private banks to manipulate an increasing number of financial and commodity markets in a futile effort to control capitalism for their own survival, eventually destroying any semblance of functioning capitalism resulting in an increasingly volatile financial system.<ref>[http://www.zerohedge.com/news/2013-04-26/illuminati-were-amateurs-matt-taibbi-explains-how-everything-rigged The Illuminati Were Amateurs], Matt Taibbi. Extract: "Conspiracy theorists of the world, believers in the hidden hands of the Rothschilds and the Masons and the Illuminati, we skeptics owe you an apology. You were right. The players may be a little different, but your basic premise is correct: The world is a rigged game. We found this out in recent months, when a series of related corruption stories spilled out of the financial sector, suggesting the world's largest banks may be fixing the prices of, well, just about everything."</ref><ref>[http://www.youtube.com/watch?v=zbQq33iTsrw Rigged bank rates]</ref> Some believe we have already reached this point where world financial markets are completely artificial and prices in many markets no longer reflect reality.<ref>[http://www.youtube.com/watch?v=zbQq33iTsrw Rigged bank rates]</ref><ref>[http://www.gata.org/node/7096 Fed's blueprint for market manipulation]</ref> Even former Fed officials now admit QE simply involves newly created money being gifted to large Wall Street banks at the expense of the general population.<ref>[http://www.zerohedge.com/news/2013-11-12/former-fed-quantitative-easer-confesses-aplogizes-i-can-only-say-im-sorry-America I am sorry America]. Quote: 'In its almost 100-year history, the Fed had never bought one mortgage bond. Now my program was buying so many each day through active, unscripted trading that we constantly risked driving bond prices too high and crashing global confidence in key financial markets. We were working feverishly to preserve the impression that the Fed knew what it was doing... Trading for the first round of QE ended on March 31, 2010. The final results confirmed that, while there had been only trivial relief for Main Street, the U.S. central bank's bond purchases had been an absolute coup for Wall Street. The banks hadn't just benefited from the lower cost of making loans. They'd also enjoyed huge capital gains on the rising values of their securities holdings and fat commissions from brokering most of the Fed's QE transactions. Wall Street had experienced its most profitable year ever in 2009, and 2010 was starting off in much the same way. You'd think the Fed would have finally stopped to question the wisdom of QE. Think again. Only a few months later—after a 14% drop in the U.S. stock market and renewed weakening in the banking sector—the Fed announced a new round of bond buying: QE2. Germany's finance minister, Wolfgang Schäuble, immediately called the decision "clueless." That was when I realized the Fed had lost any remaining ability to think independently from Wall Street. Demoralized, I returned to the private sector. Where are we today? The Fed keeps buying roughly $85 billion in bonds a month, chronically delaying so much as a minor QE taper. Over five years, its bond purchases have come to more than $4 trillion. Amazingly, in a supposedly free-market nation, QE has become the largest financial-markets intervention by any government in world history.'</ref> Ongoing purchases of government bonds by central banks continue every month, keeping interest rates artificially low and allowing government spending to continue to expand, along with a volatile heavily indebted private economy.<ref>[http://www.youtube.com/watch?v=G1l7DY8kdz0 The Fed Unspun]</ref> If these "emergency" QE measures continue indefinitely this will eventually result in indefinite depression as markets are manipulated beyond the control even of the central banks, prohibiting market "clearing" and prohibiting the reallocation of resources away from the government and financial sectors.<ref>[http://prudentbear.com/index.php/guestcommentaryview?art_id=10742 Bernanke's Balance Sheet Ensures Disaster], Michael Pento</ref><ref>[http://www.zerohedge.com/news/2013-01-26/only-3-minutes-worth-listening-davos Interview with Iceland's President Olafur Ragnar Grimson]</ref><ref>[http://www.zerohedge.com/news/2013-02-06/guest-post-all-well All Is Well], Jim Quinn</ref><ref>[http://www.youtube.com/watch?v=zbQq33iTsrw Rigged bank rates]</ref> Recent events in Cyprus and Greece are an indication of what will happen in other countries should the current system continue - periodic financial crises and bank runs from capital controls on marginal economies resulting in impoverishment of the general populace.<ref>[http://www.marketoracle.co.uk/Article39809.html Greece vs Iceland]</ref><ref>[http://www.zerohedge.com/news/2013-03-22/ecb-set-fair-cypriot-standard-living-capital-controls Capital Controls]</ref> Without debt relief, "following the rules" of debt will mean that the government will have to steal simply to pay back creditors.<ref>[http://www.marketoracle.co.uk/Article39732.html Cyprus Wealth Confiscation Scheme]</ref> Ultimately, with a compliant populace, bankers and governments will periodically, without warning, "steal", "tax" or otherwise confiscate deposits, savings and wealth to keep the financial system alive, whilst continuing to try grow the money supply through fractional reserve banking.<ref>[http://www.zerohedge.com/news/2013-03-22/ecb-set-fair-cypriot-standard-living-capital-controls Capital Controls]</ref>
Without reform or revolution, this perverted Keynesian<ref>[http://mises.org/journals/fm/January2013.pdf Two Sides of the Same Debased Coin], Hunter Lewis</ref> "upside down" combination of "socialism for the rich and capitalism for the poor" will inevitably result in chronic cascading "supply" crises in commodity markets as price signals no longer "work" due to market manipulation and price "smoothing" stifling price rises that must occur for production of essential commodities to remain profitable, thereby ultimately resulting in actual supply and demand mismatches in many essential commodity markets (such as the gold and silver markets).<ref>[http://www.marketoracle.co.uk/Article38893.html Shock Year 2013]</ref><ref>[http://www.zerohedge.com/news/2013-02-09/guest-post-us-economy-now-dangerously-detached-reality US Economy Detached From Reality]</ref> This will ultimately produce a tiny (but massively wealthy) speculative banker class,<ref>[http://www.zerohedge.com/news/2013-04-03/david-stockman-keynesian-endgame The Keynesian Endgame], David Stockman</ref><ref>[http://www.zerohedge.com/news/2013-02-06/guest-post-all-well All Is Well], Jim Quinn</ref> a bloated and ineffective government sector, a private sector that mainly services lucrative government contracts (or is otherwise starved of capital and funding) and the complete destruction of the middle class, resulting in a steadily increasing disenfranchised, desperate, intergenerational underclass.<ref>[http://www.zerohedge.com/news/2013-06-17/rotting-decaying-and-bankrupt-%E2%80%93-if-you-want-see-future-america-just-look-Detroit America's Future is Detroit]</ref><ref>[http://www.zerohedge.com/news/2013-02-06/guest-post-all-well All Is Well], Jim Quinn</ref><ref>[http://www.globalresearch.ca/western-civilization-and-the-economic-crisis-the-impoverishment-of-the-middle-class/18386 Western Civilization and the Economic Crisis]</ref><ref>[http://www.youtube.com/watch?v=DVxyGxEcMqQ Max Keiser on the UK Economy]</ref><ref>[http://mises.org/journals/fm/January2013.pdf Two Sides of the Same Debased Coin], Hunter Lewis</ref><ref>[http://www.youtube.com/watch?v=zbQq33iTsrw Rigged bank rates]</ref><ref>[http://www.zerohedge.com/news/2013-04-03/david-stockman-keynesian-endgame The Keynesian Endgame], David Stockman</ref><ref>[http://www.marketoracle.co.uk/Article39449.html An Orwellian America], Gordon T Long</ref>

David Stockman has the following comments in relation to the current monetary system:<ref>[http://mises.org/daily/6397/The-Keynesian-Endgame The Keynesian Endgame]</ref>

<blockquote>Accordingly, the central banking branch of the state remains hostage to Wall Street speculators who threaten a hissy fit sell-off unless they are juiced again and again. Monetary policy has thus become an engine of reverse Robin Hood redistribution; it flails about implementing quasi-Keynesian demand–pumping theories that punish Main Street savers, workers, and businessmen while creating endless opportunities, as shown below, for speculative gain in the Wall Street casino.

At the same time, Keynesian economists of both parties urged prompt fiscal action, and the elected politicians obligingly piled on with budget-busting tax cuts and spending initiatives. The United States thus became fiscally ungovernable. Washington has been afraid to disturb a purported economic recovery that is not real or sustainable, and therefore has continued to borrow and spend to keep the macroeconomic “prints” inching upward. In the long run this will bury the nation in debt, but in the near term it has been sufficient to keep the stock averages rising and the harvest of speculative winnings flowing to the top 1 percent.

The breakdown of sound money has now finally generated a cruel endgame. The fiscal and central banking branches of the state have endlessly bludgeoned the free market, eviscerating its capacity to generate wealth and growth. This growing economic failure, in turn, generates political demands for state action to stimulate recovery and jobs.

But the machinery of the state has been hijacked by the various Keynesian doctrines of demand stimulus, tax cutting, and money printing. These are all variations of buy now and pay later—a dangerous maneuver when the state has run out of balance sheet runway in both its fiscal and monetary branches. Nevertheless, these futile stimulus actions are demanded and promoted by the crony capitalist lobbies which slipstream on whatever dispensations as can be mustered. At the end of the day, the state labors mightily, yet only produces recovery for the 1 percent.</blockquote>

Paul Krugman has criticized David Stockman's analysis of rising debt levels.<ref>[http://krugman.blogs.nytimes.com/2013/04/03/debt-and-david-stockman/ Debt and David Stockman]</ref> Others have criticized Paul Krugman's analysis.<ref>[http://lewrockwell.com/anderson/anderson362.html Should Government Try to Extend Booms Indefinitely?]</ref> Paul Krugman's argument (essentially) is that debt does not matter because we (mostly) owe it to ourselves, but he never advocates repudiation or cancellation of the debt on the same basis.

==Status under current systems==
Whatever their political leanings, nearly all [[monetary reform]]ers agree that the current financial and economic system imposed on the populace by governments worldwide, involving coercive legal tender laws,<ref>[http://lewrockwell.com/paul/paul766.html Legalize Currency Competition], Ron Paul</ref> the perpetuation of government-protected private banks (organizations legally permitted to engage in unlimited and inherently speculative fractional-reserve banking activities during boom times, with recourse to monopoly central banks - and in some cases corrupt governments<ref>[http://www.prudentbear.com/index.php/thebearslairview?art_id=10513 The Evils of Crony Capitalism], Martin Hutchinson</ref><ref>[http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100008812/irelands-debt-servitude/ Ireland's Debt Servitude], Ambrose Evans-Pritchard, UK Telegraph</ref> - to provide bail outs of fiat money during downturns), "deregulated" labor markets (which have the effect of increasing the marketization and commodification of human activity), strictly enforced bankruptcy laws (which permit the periodic transfer of assets from failed bankrupt investors caught at the end of "Ponzi-scheme" cycles to the private banks and their associates) and personal income tax (which, combined with periodic economic collapses, dispossesses the majority of the populace from their accumulated income and wealth and transfers this wealth to the owners of illicit government bonds) amounts to an inherently unstable, unjust and dysfunctional financial system resulting in environmentally damaging over-consumption and massive worldwide [[malinvestment]]s,<ref>[http://www.mises.org/daily/6578/Central-Banks-The-True-Centers-of-Political-Power Central Banks]</ref> the systematic and irredeemable destruction of fertile arable land,<ref>[http://www.huffingtonpost.co.uk/2011/09/27/natural-resources-being-e_n_982576.html Natural Resources Being Exhausted]</ref> and the government-sponsored (and ultimately unsustainable) oppression of the indebted, impoverished and economically enslaved majority.<ref>[http://www.zerohedge.com/news/2013-02-06/guest-post-all-well All Is Well], Jim Quinn</ref><ref>[http://www.thenewamerican.com/economy/economics/item/14238-obama%E2%80%99s-trillion-dollar-coin-exposes-federal-reserve-scam Obama’s Trillion-Dollar Coin Exposes Federal Reserve Scam], Alex Newman, ''New American''</ref><ref>[http://mises.org/daily/4893 ''The Ethics of Money Production''], Jorg Guido Hulsmann</ref><ref>[http://www.youtube.com/watch?v=QIBFvikcl7g Stacy Herbert and Max Keiser: Flaming Banks] Max Keiser Quote: "Well, ''it's slavery''. You know, they had slavery, then they outlawed slavery but in its place were the Jim Crow laws: 'Coloreds Only. Whites Only.' Then the banks got involved and they have ''financial'' Jim Crow laws. If you're black and living in the ghetto, you are charged 40, 50, 60% to borrow money. If you're white and you work on Wall Street, you're charged ''negative'' 5% to borrow money. That's a ''financial'' Jim Crow law that goes down color lines. Now the big corporations who realize America's becoming a new ''plantation of slaves'' - they're saying, 'Forget it! We don't even make a pretense that there's a "middle class". Here's a product for those living on the plantation. And here's the product for the man livin' in the Big House!'"</ref><ref>[http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/3/25_Sinclair_-_Cyprus%2C_Gold%2C_Russia_%26_A_New_Monetary_System.html Jim Sinclair Interview]. Quote: "He [Paul Craig Roberts] spoke about the banks moving to enslave humanity, and he said the Cypriots had to do whatever it took to put a stop to this."</ref><ref>[http://www.marketoracle.co.uk/Article40103.html Americans Loving Their Servitude], James Quinn</ref>

==See also==
* [[Austrian Business Cycle Theory]]
* [[Central bank]]
* [[Monetary reform]]
* [[Murray Rothbard]]
* [[Ron Paul]]

==Notes==
{{reflist|4}}

==Links==
* [http://www.thefreemanonline.org/features/taking-money-back-part-i/ Taking Money Back: Part I] by [[Murray Rothbard|Murray N. Rothbard]], September 1995
* [http://www.thefreemanonline.org/features/fractional-reserve-banking-part-ii/ Fractional Reserve Banking: Part II] by Murray N. Rothbard, October 1995 (reprinted at [[LRC]] [http://www.lewrockwell.com/rothbard/rothbard239.html here])

*[http://econpapers.repec.org/paper/wpawuwpma/0203005.htm Fractional Reserve Banking as Economic Parasitism]
*[http://www.prosperityuk.com/prosperity/links/links.html Monetary Reform websites]
*[http://www.relfe.com/plus_5_.html I want the Earth Plus 5%]
*[http://www.youtube.com/watch?v=JUFxsZF5E48&list=LLG5bLlG3NQ8sHur0Oco-CmQ&feature=mh_lolz How Our Monetary System Works and Fails]
*[http://www.youtube.com/watch?v=jqvKjsIxT_8 Money As Debt (videoplay animation)]
*[http://www.youtube.com/watch?v=swkq2E8mswI&feature=like-suggest&list=UL The Secret of Oz (documentary video)]
*[http://dailyreckoning.com/ Daily Reckoning]
*[http://jsmineset.com/ Jim Sinclair's MineSet]
*[http://www.lewrockwell.com/ LewRockwell.com]
*[http://www.marketoracle.co.uk/ Market Oracle]
*[http://maxkeiser.com/ Max Keiser]
*[http://globaleconomicanalysis.blogspot.com/ MISH]
*[http://www.prudentbear.com/ PrudentBear.com]
*[http://www.youtube.com/watch?v=Bx5Sc3vWefE 12 Year Old Victoria Grant's Speech]
*[http://www.webofdebt.com/ Web of Debt]
*[http://www.zerohedge.com/ Zero Hedge]

{{DEFAULTSORT:Criticism Of Fractional-Reserve Banking}}
[[Category:Argumentation]]
[[Category:Money]]

Criticism of fractional reserve banking

2014-01-12T02:18:22Z

Karmaisking: /* Status under current systems */

{{main|Fractional-reserve banking}}
'''Criticisms of [[fractional reserve banking]]''' and [[central bank|central banking]] have been put forward from a variety of perspectives, although the most vigorous and sustained criticism now comes from libertarians and anarcho-capitalists such as economists [[Jesús Huerta de Soto]] and [[Jörg Guido Hülsmann]], American politician [[Ron Paul]], and commentators such as historian Thomas Woods, Jim Grant of ''Grant's Interest Rate Observer'' and former US Budget Director David Stockman.<ref>[http://www.philippbagus.com/archivos/Working%20paper%20deposits%20loans%20and%20banking%20bagus%20howden%20block.pdf Deposits, Loans and Banking: Clarifying the Debate], Philipp Bagus, David Howden and Walter Block</ref><ref>[http://blog.mises.org/16521/fantastic-speech-by-de-soto/ Jesús Huerta de Soto Speech]</ref><ref>[http://mises.org/daily/5174/Life-with-the-Fed-Sunshine-and-Lollipops Life with the Fed], Thomas Woods</ref><ref>[http://mises.org/daily/5146/Over-to-You-H-Parker-Willis Over to you H Parker Willis], Jim Grant</ref><ref>[http://www.youtube.com/watch?v=1VcN_Z6L0jM&feature=player_embedded#at=609 James Grant Interview with James Turk]</ref><ref>[http://mises.org/daily/5113/The-End-of-Sound-Money-and-the-Triumph-of-Crony-Capitalism The End of Sound Money and the Triumph of Crony Capitalism], David Stockman, Henry Hazlitt Memorial Lecture, Austrian Scholar's Conference</ref><ref>[http://www.lewrockwell.com/orig11/stockman6.1.1.html Crony Capitalism Strikes Again], David Stockman</ref><ref>[http://www.lewrockwell.com/orig11/stockman6.1.1.html David Stockman Interview - Blame the Fed]</ref><ref>[http://www.zerohedge.com/news/2013-04-03/david-stockman-keynesian-endgame The Keynesian Endgame], David Stockman</ref><ref>[http://www.lewrockwell.com/2013/10/david-stockman/its-sundown-in-america/ Sundown in America], David Stockman</ref><ref>[http://www.lewrockwell.com/rockwell/imperative-sound-money.html The Social Imperative of Sound Money], Lew Rockwell</ref><ref>[http://lewrockwell.com/stockman/stockman16.1.html The Forgotten Cause of Sound Money]</ref><ref>[http://mises.org/daily/6397/The-Keynesian-Endgame The Keynesian Endgame]</ref> Most in the mainstream (both on the left and right) remain silent on the issue of fractional reserve banking and central banking,<ref>[http://www.lewrockwell.com/lewrockwell-show/2008/10/31/58-americas-slow-motion-fascist-coup/ Naomi Wolf Interview with Lew Rockwell], Lew Rockwell: "I've frankly never understood why people on the Left are ''not'' upset about the Federal Reserve. If you look back to the history..." Wolf: "We probably don't understand it!" Lew Rockwell:"...but you know the founding of the Fed before the law was, you know, with bipartisan support signed in 1913, the Federal Reserve Act was drafted at J.P. Morgan's private club - it's sounds like a conspiracy story, but I guess it sort of is - on Jekyll Island Georgia...Big bankers wrote the Federal Reserve Act for their benefit!"</ref><ref>[http://www.lewrockwell.com/rockwell/imperative-sound-money.html The Social Imperative of Sound Money], Lew Rockwell: "I find it sickening that there are so few voices outside the Austrian School that will stand up to this policy [of fiat money, fractional reserve banking and central banking]."</ref> although past critics have included mainstream economists such as Irving Fisher,<ref>''100% Money'', Irving Fisher</ref><ref>[http://en.wikipedia.org/wiki/A_Program_for_Monetary_Reform ''A Program for Monetary Reform'']</ref> and [[Milton Friedman]].<ref>Friedman, M., A Program for Monetary Stability, New York, Fordham University Press, 1960, pp. 65</ref><ref>[http://mises.org/daily/3108 The Social Imperative of Sound Money], Lew Rockwell: "I find it sickening that there are so few voices outside the [[Austrian School]] that will stand up to this policy (of [[fiat money]]/[[fractional reserve banking]]/[[central bank]]ing)".</ref> Within the economics profession, most criticisms are from the [[Austrian School]].<ref>[http://mises.ca/posts/blog/illogic-in-fractional-reserve-banking/ Illogic in Fractional Reserve Banking], James E. Miller</ref><ref>[http://mises.org/media/4014 The Economics of Legal Tender Laws], [[Jorg Guido Hulsmann]] (includes detailed commentary on [[fractional reserve banking|FRB]])</ref><ref>[http://mises.org/store/Money-Bank-Credit-and-Economic-Cycles-P290C0.aspx Money, Bank Credit and Economic Cycles], Jesus Huerta de Soto, Mises Institute ISBN: 978-1-933550-39-8</ref><ref>[http://mises.org/store/Meltdown-P557.aspx ''Meltdown''], Tom Woods, Regnery Press ISBN: 9781596985872</ref><ref>[http://www.marketoracle.co.uk/Article25212.html The Faults of FRB], Thorsten Polleit</ref> There are also critics from outside the economics profession who advocate [[monetary reform]].<ref>[http://www.nakedcapitalism.com/2010/12/matt-stoller-end-this-fed.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capitalism%29 End This Fed], Matt Stoller</ref><ref>For an example of the writings of these groups, see [http://www.bilderberg.org/monref.htm this] contribution from Bilderberg.org</ref><ref>[http://www.youtube.com/watch?v=VMngK0t5WkY Max Keiser]</ref><ref>[http://www.marketoracle.co.uk/Article28533.html The Global Debt Crisis], Ellen Hodgson Brown</ref><ref>[http://www.mises.org/daily/6358/The-Backroom-World-of-Central-Banking Lords of Finance]</ref>

==Terminology==

Critics of fractional reserve banking and the related fiat paper monetary system may refer to it by the term '''debt-based monetary system''',<ref>[http://www.thenewamerican.com/economy/economics/item/14238-obama%E2%80%99s-trillion-dollar-coin-exposes-federal-reserve-scam Obama’s Trillion-Dollar Coin Exposes Federal Reserve Scam], Alex Newman, ''New American''</ref><ref>[http://mises.org/daily/4631 Is Our Money Based On Debt?], Robert Murphy</ref><ref name="speech">For an example of the public use of the term, see the [http://www.prosperityuk.com/prosperity/articles/earl.html speech] of the Earl of Caithness in the House of Lords on 5 March 1997</ref> or '''credit-based monetary system'''.<ref>For example of the public use of the term, see this speech given by [[Zhou Xiaochuan]], [http://www.bis.org/review/r090402c.pdf Reform the monetary system], 23 March 2009 (BIS), and this article, [http://www.nakedcapitalism.com/2009/02/steve-keen-roving-cavaliers-of-credit.html ''Roving Cavaliers of Credit''] by Steve Keen (with commentary by Yves Smith)</ref><ref>[http://globaleconomicanalysis.blogspot.com/2010/09/myths-about-whats-economically.html Myths], MISH</ref><ref>[http://globaleconomicanalysis.blogspot.com/2010/07/are-we-trending-towards-deflation-or-in.html Deflation], MISH</ref><ref>[http://globaleconomicanalysis.blogspot.com/2008/04/deflation-in-fiat-regime.html Deflation In A Fiat Regime?], MISH</ref> They may also refer to money created in parallel with debt as '''debt money''' or '''endogenous money''', reflecting the fact that virtually all new money is currently created by people or businesses or governments further indebting themselves to banks.<ref name="death"/><ref>[http://www.debunkingeconomics.com/Papers/Money/KeenModellingEndogenousMoneyICAPE.pdf Endogenous Money], Steve Keen</ref> This monetary system is called "endogenous" because the money supply is flexible, expanding in parallel with the demand for debt and stalling or contracting when demand for debt declines.<ref>[http://www.debunkingeconomics.com/Papers/Money/KeenModellingEndogenousMoneyICAPE.pdf Endogenous Money], Steve Keen</ref> Some consider this a perverse and dysfunctional way of introducing new money into the economy.<ref name="death"/>

The term, "debt-based monetary system," and related terms such as "debt money" are not used by conventional economists. Mainstream economists often refer to "debt money" by its antonym "credit" and distinguish between types of money only ''after'' the money is created. The very definition of "money" and the distinction between "debt" and "money" (and their respective economic effects) are still sources of vigorous ongoing debate.<ref>[http://www.youtube.com/watch?v=s8HnN8Htr1M David Graeber's Interview with Max Keiser]</ref><ref>[http://lewrockwell.com/wile/wile25.1.html Daily Bell Interview: Dr. Joseph Salerno]</ref><ref>[http://mises.org/daily/5052/Deflation-Confusion-Money-Is-Not-Credit Money Is Not Credit], Robert Blumen</ref><ref>[http://globaleconomicanalysis.blogspot.com/2009/02/fiat-world-mathematical-model.html Fiat World], MISH</ref><ref>[http://globaleconomicanalysis.blogspot.com/2010/09/myths-about-whats-economically.html What's Economically Important], MISH</ref> Mainstream economists rarely if ever discuss the origins of modern money and generally do not actively discuss or comment on the fact that virtually all money is now created through individuals, or businesses, or governments going into debt to government-sponsored commercial banks.<ref>[http://mises.org/daily/3108 The Social Imperative of Sound Money], Lew Rockwell</ref><ref>For an example of the mainstream use of the term "credit" instead of "debt-money" see [http://www.ft.com/cms/s/bdfa429e-17a2-11dd-b98a-0000779fd2ac,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2Fbdfa429e-17a2-11dd-b98a-0000779fd2ac.html&_i_referer=http%3A%2F%2Fwww.ft.com%2Fhome%2Fasia this] example from the Financial Times, 1 May 2008</ref> Discussion around the nature of "debt-based" money and the arguments over its effects on the economy are notably absent from most established mainstream academic economic publications<ref>Paul Krugman, writing at [http://www.slate.com/id/9593 Slate.com], stated that the Austrian theory of business cycles was "about as worthy of serious study as the phlogiston theory of fire".</ref> and most mainstream economists instead argue that the origin of different kinds of money (and the volume of their issuance) does not really matter, at least in the long run.<ref>[http://www.lewrockwell.com/wenzel/wenzel87.1.html Senior Fed Economist Calls Ron Paul a Pinhead]</ref> This mainstream idea is referred to as the theory of "money neutrality".<ref>[http://www.lewrockwell.com/wenzel/wenzel87.1.html Senior Fed Economist Calls Ron Paul a Pinhead]</ref><ref>[http://mises.org/daily/5172/Is-Inflation-Harmless-or-Even-Good Is Inflation Harmless or Even Good?], Robert Murphy</ref><ref>[http://libertarianpapers.org/articles/2011/lp-3-14.pdf Free Banking and the Structure of Production], Dan Mahoney</ref> Some commentators have speculated that the unusual "silence" around the topics of fractional reserve banking and central banking and the staunch refusal to consider alternative theories of money can be attributed to the simple fact that many economists are on the payroll of the major commerical or central banks of the world and are beholden to those banks for their livelihood.<ref>[http://www.safehaven.com/article/15068/economists-opposing-fed-audit-are-on-fed-payroll Economists on Fed Payroll], MISH</ref><ref>[http://www.huffingtonpost.com/2009/09/07/priceless-how-the-federal_n_278805.html Priceless], Ryan Grim, Huffington Post</ref><ref>[http://www.marketoracle.co.uk/Article26581.html Ten Reasons The Banksters Got Away With It], Danny Schechter</ref><ref>[http://www.youtube.com/watch?v=FxtCn2GyqKc&feature=related Corruption in Academic Economics], Charles Ferguson</ref><ref>[http://www.marketoracle.co.uk/Article27805.html Currency Dead End Paradox], Jim Willie CB</ref> Those economists who "dare" to speak about such topics are simply not employed by the banks, by government-sponsored universities or by international financial institutions and are not published in mainstream economic publications and, therefore, their views are not widely disseminated to the general public who are generally taught by government-sponsored teachers and receive their news from the mainstream media.<ref>[http://www.huffingtonpost.com/2009/09/07/priceless-how-the-federal_n_278805.html Priceless], Ryan Grim, Huffington Post</ref><ref>[http://www.marketoracle.co.uk/Article26581.html Ten Reasons The Banksters Got Away With It], Danny Schechter</ref><ref>[http://www.youtube.com/watch?v=FxtCn2GyqKc&feature=related Corruption in Academic Economics], Charles Ferguson</ref><ref>[http://www.wsws.org/en/articles/2013/01/29/keen-j29.html UWS victimises Professor Steve Keen]</ref><ref>[http://www.zerohedge.com/news/2013-05-02/guest-post-nicholas-taleb-against-establishment-economists Establishment Economists]</ref>

== Typical criticisms ==

Founder of the so-called "New Austrian School", Professor Antal E. Fekete, has stated the following in relation to the current monetary system:<ref>[http://www.professorfekete.com/articles/AEFTheSilverSaga.pdf The Silver Saga]</ref>

{{quote|The world economy, sagging as it is under the weight of its debt tower and fast depreciating irredeemable currencies, is clearly on its way to self-destruction. The forcible elimination of, first, silver and then a hundred years later of gold, from the monetary system removed the only ultimate extinguishers of debt we have. In consequence, total debt can only grow, never contract. The process is hidden since the unpaid and unpayable debt is accumulating as sovereign debt of governments. The world is deluding itself that sovereign debt can increase indefinitely as governments can extend its maturity indefinitely. In 2008 we had the wake-up call that it cannot. Unless we stop the proliferation of debt, the world is facing prolonged deflation, depression, continuing capital destruction, bankruptcies and unprecedented unemployment. It is leading to a breakdown of law and order. It could spell the end of our civilization.}}

In August 2004, four years ''before'' the Global Financial Crisis of September 2008 and the ongoing financial crises in Europe and elsewhere, Austrian commentator Robert K. Landis stated the following:<ref>[http://www.goldensextant.com/SavingtheSystem.html Saving the System]</ref>

{{quote|No, the die is cast: we shall have the catastrophe. Our fiat monetary system got a reprieve in the 1980's, not a deliverance. All that has happened since, with the fantastic mispricing of credit the Greenspan Fed has engineered, and the massive global malinvestment this has engendered, is that the dimensions of the unraveling have become more dire.

Mises called this one too: "Certainly, the banks would be able to postpone the collapse; but nevertheless, as has been shown, the moment must eventually come when no further extension of the circulation of fiduciary media is possible. Then the catastrophe occurs, and its consequences are the worse and the reaction against the bull tendency of the market the stronger, the longer the period during which the rate of interest on loans has been below the natural rate of interest and the greater the extent to which roundabout processes of production that are not justified by the state of the capital market have been adopted."

With respect to the form the denouement will take, much has been written within the gold community on the subject of whether we face hyperinflation or deflationary depression as the prelude to monetary collapse. Both sides of the debate appear to accept the premise that whatever may transpire will bear a linear relationship to what now exists. The disagreement centers on the direction the line will go. But today's markets are fully linked by derivatives and technology, and they are patrolled by wolf packs of large, leveraged speculators not noted for their patient outlook. So it seems likely that the terminal monetary crisis will unfold on virtually an instantaneous and discontinuous basis, once the fog of statistical deceit and false market cues begins to lift and a clear trend either way becomes evident. We are not likely to enjoy the luxury of observing either a deflation or an inflation unfold in the fullness of time, but rather, just as Mises foretold, a final and total catastrophe of our fiat monetary system.}}

Financial commentator Jim Willie has written the following regarding the current fiat money system:<ref>[http://www.marketoracle.co.uk/Article39362.html Raging Gold Bull]</ref>

{{quote|The West cannot solve its problems, hardly properly described as a financial crisis anymore, under the current framework bound to the fiat paper currencies. The global monetary war is heating up notably. The heavy liquidity has caused unfixable distortions in every conceivable bond market niche. The new and better debt devices have been exposed for their shams. The leading central bankers lost their credibility long ago. The weakness is as broad as it is deep, a reliance upon paper wealth and paper structures and paper contracts, during a time of zero bound interest rates and unfettered hyper monetary inflation to cover the debts. Almost no foreign USTreasury Bond buyers exist anymore. The US has become Weimar Amerika, a fascist enclave.}}

On 5 March 1997, in a speech in the House of Lords in London England, the Earl of Cathiness made the following observations:<ref>[http://prosperityuk.com/2001/06/our-debt-based-money-system-will-break-us/ Our debt-based monetary system will break us], Earl of Cathiness, House of Lords, Wednesday, 5 March, 1997, Hansard, Vol. 578, No. 68, columns 1869-1871</ref><ref>See also the additional House of Lords speeches contained [http://earthlinggb.wordpress.com/2011/04/06/british-house-of-lords-stunning-speeches/ here]</ref>

{{quote|...it is also a good time to stand back, to reassess whether our economy is soundly based. I would contest that it is not, not for the reason to which the noble Lord, Lord Eatwell, alluded, which is that it is the Government’s fault, but our whole monetary system is utterly dishonest, as it is debt-based. “Dishonest” is a strong word, but a system which by its very actions causes the value of money to decrease is dishonest and has within it its own seeds of destruction. We did not vote for it. It grew upon us gradually but markedly since 1971 when the commodity-based system was abandoned.

Let us look at what has happened since then. The money supply in 1971 was just under £31 billion. At the end of the third quarter of last year, it was about £665 billion. In 25 years it has grown by a staggering 2,145 per cent. Where has the money come from? Interestingly, the Government have only minted a further £20 billion in that time. It is the banks, the building societies and our commercial lenders who have created the balance of £614 billion. If this rate of growth is projected over the next 25 years, the money supply in 2022 will be over £14,000 billion.

All that new money bears interest paid either by us as individuals, by companies or by the Government. Today the Government pay over £30 billion annually in interest charges — coincidentally about the same as the total money supply only 25 years ago. Governments since then have abdicated their responsibility for producing new money and controlling the money supply so that now they are marginalised. In 1971 government notes and coins accounted for 14 per cent of the money supply. Now it is only about 3.5 per cent. “So what?”, noble Lords might ask.

The problem is that it is commercial lending that has boosted the money supply, thus increasing debt and, as sure as night follows day, inflation follows growth in money supply of this sort...

Conventional wisdom tells us that in order to create new jobs and boost the economy, interest rates have to be reduced. That has happened. People are encouraged to borrow to invest and spend. That has happened. As the continuing flow of new money finds its way into the economy, inflation will follow and up will go interest charges again to reduce the level of borrowing. In order to pay the increasing levels of interest, borrowers will once more have to reduce expenditure in other areas of economic activity. The cycle will continue, but the next time, as before, we will all start deeper in debt and with a burden harder to carry. Personal debt has already increased by nearly 3,000 per cent since 1971. How much more can we take? I hope, for the sake of our economy, without which we cannot finance what we want to see — a good health service and a good social security system among other things — we will question this conventional wisdom.

We all want our businesses to succeed, but under the existing system the irony is that the better our banks, building societies and lending institutions do, the more debt is created. The noble Lord, Lord Kingsdown, said that there is little that can be done about debt. No, I do not believe that. There is a different way: it is an equity-based system and one in which those businesses can play a responsible role. The next government must grasp the nettle, accept their responsibility for controlling the money supply and change from our debt-based monetary system. My Lords, will they? If they do not, our monetary system will break us and the sorry legacy we are already leaving our children will be a disaster.}}

On 4 November 1999, Lord Sudeley stated in the House of Lords:

{{quote|The only way in particular to stop inflation is to stop banks from creating credit. The supply of money should be removed from banks and should be assumed by governments, who should issue it on a debt-free basis. Such a view is supported by five disparate quarters: the noble Lord, Lord Beswick, in the debate which he introduced to this House in 1985, Disraeli, the Vatican under Pope Pius XI in his Encyclical Quadragesimo Anno in 1931, the Tsars of Russia in the last century, who prevented the setting up of a privately owned central bank, and, above all, Abraham Lincoln, who said that governments should create, issue, and circulate all currency and credits needed to satisfy the spending power of governments and the buying power of consumers.

By adopting those principles, the taxpayer would be saved immense sums of interest. Lincoln’s greenbacks were generally popular, and their existence let the genie out of the bottle with the public becoming accustomed to government-issued, debt-free money. The year after Lincoln’s assassination, Congress set to work at the bidding of the European central banking interests to retire the greenbacks from circulation and to ensure the reinstitution of a privately owned central bank under the usurers’ control.

During the history of the United States, the money power has gone back and forth between Congress and some privately owned central bank. The American people fought off four privately owned central banks before succumbing to a fifth privately owned central bank, at that time essential, owing to the period of weakness during the Civil War.

The founding fathers of the United States knew the evils of a privately owned central bank. They had seen how the Bank of England ran up the British national debt to such an extent that Parliament was forced to place unfair taxes on the American colonies, leading to their loss following, the American Revolution.

I now conclude. Once the fundamental decision is taken to prevent sterling from being debt-based, the Commonwealth could act as the right monetary union to use sterling debt-free as a genuine alternative to the dollar and the euro.}}

Norm Franz states in his ''Money and Wealth in the New Millennium'':<ref>[http://www.amazon.com/Money-Wealth-Millennium-Norm-Franz/dp/0971086303 ''Money and Wealth in the New Millennium''], Norm Franz</ref>

{{quote|Gold is the money of kings, silver is the money of gentlemen, barter is the money of peasants – but debt is the money of slaves.}}

12th century Chinese scholar Hu Zhiyu stated:<ref>Ralph T. Foster, ''Fiat Paper Money, The History and Evolution of Our Currency'', page 19</ref>

{{quote|Paper money, the child, is dependent on precious metals, the mother. [Inconvertible paper notes are therefore] orphans who lost their mother in childbirth.}}

Robert H. Hemphill, credit manager of the Federal Reserve in Atlanta, stated in 1939:<ref>Preface to ''100% Money'', Irving Fisher. Note: This quote has not been traced to the primary source. See for example [http://www.webofdebt.com/excerpts/introduction.php Web of Debt] and [http://www.lewrockwell.com/north/north908.html Gary North's critique of the book and its sources]</ref>

{{quote|If all the bank loans were paid, no one would have a bank deposit and there would not be a dollar of coin or currency in circulation. This is a staggering thought. Someone has to borrow every dollar we have in circulation, cash or credit. If the banks create ample synthetic money we are prosperous; if not, we starve. When one gets a complete grasp of the picture the tragic absurdity of our hopeless position is almost incredible, but there it is. It (the banking problem) is the most important subject intelligent persons can investigate and reflect upon. It is so important that our present civilization may collapse unless it becomes widely understood and the defects remedied very soon.}}

British monetary reformer Michael Rowbotham states the following in his book, ''The Grip of Death'' (the title being derived from the literal origin of the word "mortgage"):<ref name="death">{{cite book |last= Rowbotham |first= Michael |title= The Grip of Death: A Study of Modern Money, Debt Slavery and Destructive Economics | year= 1998 |publisher= Jon Carpenter Publishing |isbn= 9781897766408 }}</ref>

{{quote|It is actually not in the least surprising that nations are chronically in debt, governments have inadequate resources, public services are under-funded and people are beset by mortgages and overdrafts. The reason for all this monetary scarcity and insolvency is that the financial system used by all national economies worldwide is actually founded upon debt. To be direct and precise, modern money is created in parallel with debt. The reason for the failure of economists to question patently invalid monetary data becomes clear - there is a total acceptance by them of the most extraordinary method for supplying money to the modern economy.

The creation and supply of money is now left almost entirely to banks and other lending institutions. Most people imagine that if they borrow from a bank, they are borrowing other people's money. In fact, when banks and building societies make any loan, they create new money. Money loaned by a bank is not a loan of pre-existent money; money loaned by a bank is additional money created. The stream of money generated by people, businesses and governments constantly borrowing from banks and other lending institutions is relied upon to supply the economy as a whole. Thus the supply of money depends upon people going into debt, and the level of debt within an economy is no more than a measure of the amount of money that has been created...

All around us, the gross failure of modern economics screams out to be addressed. The towering indifference of those shining offices scraping the sky above the menacing ghettos of Brooklyn; the speculative channelling of billions of pounds of volatile international finance, which can leave a country prosperous one week and plunged into decline the next; the ludicrous production of cheap goods of poor durability, so that jobs are 'protected', and we can recycle the materials and make the goods all over again; the ridiculous export drives by which every country simultaneously attacks the economies of every other nation, under the pretence that such global free trade improves the general wellbeing; the staggering waste of a throwaway, quick-growth, all-new spiral of constant economic change; the outrageous financial debt which Third World countries have actually paid many times over, but which, due to interest, is now larger than ever before - a debt which forces those impoverished nations to compete to supply goods already in surplus; the cynical manipulation of human emotions into buying fashion-obsessed trivia; the burgeoning transport demands of escalating economic growth and centralisation, with identical goods crisscrossing the globe, regardless of environmental cost; the fact that despite the incredible productive capacity of the modern economy, people are obliged to work harder, with ever greater efficiency, forever forced to adapt and retrain or face a life of indignity and misery as one of the unemployed.

Both those in work and out must watch, as the world they know and understand changes almost in front of their eyes like some nightmarish Kafka-esque novel. This is the era of accelerating economic change. The benefits are highly dubious, and no-one even pretends that the economy is responding to what people actually want. The only justification offered for the changes is that this is 'the age of progress', and 'you can't stop progress', even if you are human and the progress you are discussing is supposed to be about people and the lives they might lead in the future. The world of economics has got mankind by the throat and everyone knows it, and no-one has a clue where we are going or why we are going there.

But is this surprising? If a monetary system is invalid or flawed, then the entire economy is based on the mathematics of error, and must be riddled with the effects. If the financial system upon which our economies are built is defective, and yet monetary considerations dominate our economic decisions, should we be surprised if the results are less than satisfactory?

The major role played by bank credit, which forms over 95% of the money stock in most developed nations, suggests that it cannot but be implicated in these trends. This is further suggested by the way that banking has literally become the focal point of modern economic management, through manipulating interest rates. The stargazers of Whitehall and the Federal Reserve hold their councils, trying to tread the non-existent tightrope between growth and recession by debating quarter percentage-points of interest rates. Alan Greenspan, the Chairman of the Federal Reserve, engagingly describes his task in controlling the American economy through adjusting interest rates as a matter of 'taking the champagne away once the party has started'. Businessmen around the world hold their breath, measuring his every word, wondering what he will decide. There could be no greater indictment of contemporary financial economics than this; that a fluctuating financial digit on a single computer system in a single street in a single country should have the ability to dominate the economies of an entire planet...

The past thirty years are almost unique by comparison with the previous three centuries in the lack of attention that has been directed at debt and the financial system. Throughout the eighteenth century, there were repeated calls for reform. During the nineteenth century, excessive banking was held by many to be directly responsible for the waves of appalling poverty that swept Europe and America during a period of increasing industrialisation and agricultural development. In this century, during the depression of the 1930s, the financial system effectively seized up and brought virtual collapse to the economies of the world in an age which was, perhaps for the first time, obviously wealthy, and in which technology offered people real freedom as well as material prosperity. One observer judged that over 2,000 schemes for monetary reform were put forward at that time - all with a common theme in their outright rejection of the debt-based financial system as it then operated. The same system continues to this day, modified in small details, but unchanged in principle; and the recent financial crisis in Asia shows the potential for collapse still exists.

However the issue of economic volatility through booms, slumps, crises, and collapses has never been the sole point of criticism. It is the long-term trends that a debt-based financial system fosters which are most destructive. The most obvious of these is declining personal solvency. Mortgages support over 60% (£420 billion) of the money stock in the UK and over 70% ($4.2 trillion) in the US. Housing-debt statistics for the UK and the US show that there has been a dramatic decline in true home ownership as mortgages become higher and ever more widespread. There can be little question that relying upon housing debt to supply money to an economy lacks economic and political justification. However, taken in conjunction with the marked rise in commercial debt, mortgages have a knock-on effect. In an economy where the price of goods is elevated by commercial debt and consumer incomes are deeply eroded by mortgage debt, there is a persistent and subtle advantage given to low-quality, mass-produced goods, and growth is fostered in this direction. The persistent decline in product durability and the growth-culture of a rapacious consumer society can be directly traced to the debt-based financial system.

The financial system has also generated a serious distortion of agriculture. Excessive farming debt has driven out the most efficient producers - small/medium sized farms. Meanwhile, the relentless pursuit of farming and processing methods oriented towards a low-price market now involves the production of foodstuffs of poor nutritional value, inferior to that which the land can provide and inferior to that which consumers actually desire.

The nature of growth within a debt economy affects not only the quality of output, but distribution and marketing. Intense competition for sales within a debt-based economy results in the use of transport as a competitive strategy by businesses. This has led to a progressive breakdown of local and regional supply networks, and marketing over ever-greater distances, leading to escalating commercial traffic demands.

At the international level, trade is deeply affected by the debt-based financial system. The aggressive pursuit of maximum export revenues, rather than seeking a simple balance of trade, is entirely due to the fact that even the wealthiest nations operate from a position of gross insolvency. International trade has degenerated into a competition between nations to alleviate their indebtedness, rather than a process involving a mutually beneficial exchange of goods and services.

Endemic Third World debt is also directly attributable to the reliance upon debt and banking to supply money. The theoretical model of borrowing from the World Bank/IMF, investing in development and repaying loans from export revenues, is one of the great failures of contemporary economics. The persistent inability on the part of debtor nations to repay these loans suggests strongly that the nature of the indebtedness suffered by the Third World has absolutely no actual legitimacy or validity...

The more one explores the broad impact of debt, the more apparent it becomes that bank-credit constitutes a dysfunctional form of money. An economy based almost entirely upon bank-credit and debt experiences an intense drive for growth, regardless of need or demand. Bank credit engenders financial dependence, injects instability and fosters growth-distortions, both within an economy and throughout the international arena.

Reform of the debt-based financial system is clearly not a minor issue. It is not a matter of fiddling around with taxes, incomes and allowances to make things apparently more equal, more efficient, or perhaps more straightforward. Changing the debt-based financial system involves gradually altering the very foundations upon which national and international economics is based. Monetary reform is concerned with attempting to determine a new principle for the supply of money to an economy - the purpose being to create a supportive financial environment in which more constructive economic trends are allowed to emerge, and in which more benign systems of overall economic management become possible. In view of the rapacious onslaught on the environment, the waste of natural resources and the social and political friction caused by de-regulated commerce and capital flows, this is at once a promising, but a sobering prospect.}}

Dr Chris Leithner states in his book ''The Evil Princes of Martin Place'':<ref>[http://economics.org.au/2011/04/the-banking-bubble-blow-by-blow/ The Evil Princes of Martin Place]</ref>

{{quote|The inflation that necessarily results from fractional reserve banking is a “tax” by which the early recipients of counterfeit money expropriate late recipients’ wealth. The tax is particularly insidious because it’s so well hidden. Few people — apparently including banksters and mainstream economists! — understand it (or, if they understand it, certainly don’t draw attention to it); and still less do they discuss its ethical and distributional implications. Obviously, it’s in insiders’ interest to distract outsiders’ attention from the source of the counterfeiting. It’s also in their interest to reverse the order of causality with respect to the cause and consequences of inflation, and thereby further to bamboozle the public. Accordingly, governments and mainstream economists don’t attribute the consequence (rising prices) to its single cause (inflation); instead, they brazenly and diametrically incorrectly insist that rising prices cause inflation! (p. 143)...

Gosplan, the Soviet Union’s central planning agency, set targets for the production of steel, cement and myriad other goods and services; Western central banks set targets for the Overnight Cash Rate and the Consumer Price Index. The chaotic consequences of central plans, Soviet and Western, necessarily reverberate throughout the economy … It’s quite comical: people who claim they “believe in the free market” blindly and unthinkingly affirm central banking and its relentless interventions into the market. Elementary logic completely escapes them: if you reject central planning in general, then you must also reject specific aspects like the central planning of money. If you abhor attempted price-fixing, then you must abhor the attempt to fix the Overnight Cash Rate. (pp. 254-55)...

[I]t is highly improbable that the combination of a pure gold standard and a 100% reserve for deposits has ever resulted in a prolonged rise of prices. The historical record is telling: in no year from 1492 to the present has the total supply of gold increased by more than 5%. (p. 552)}}

Ron Paul stated in his book ''End the Fed'':<ref name="Paul_End">Ron Paul. [http://mises.org/daily/3687 ''End the Fed''], ''Mises Institute'', September 03, 2009. Chapter 2 of the book ''End the Fed''. Referenced 2011-03-16.</ref>

{{quote|American presidents actually worked to implement and defend the gold standard, which put a brake on the ability of the largest banks to expand credit without limit. The gold standard worked like a regulator in this way. Ultimately, banks had to function like every other business. They could expand and make risky loans up to a point, but when faced with bankruptcy, they had nowhere they could turn. They would have to contract loans and deal with extreme financial pressures. Risk bearing is a wonderful mechanism for regulating human decision making. This created a culture of lending discipline.

In the jargon of the day, the system lacked "elasticity." That's another way of saying that banks couldn't expand money and credit as much as they wanted. They couldn't inflate without limit and count on a centralized institution to bail them out...

The banking industry has always had trouble with the idea of a free market that provides opportunities for both profits and losses. The first part, the industry likes. The second part is another issue. That is the reason for the constant drive in American history towards the centralization of money and banking, a trend that not only benefits the largest banks with the most to lose from a sound money system, but also the government, which is able to use an elastic system as an alternative form of revenue support. The coalition of government and big bankers provides the essential backbone of support for the centralization of money and credit...

Consider the Soviet case: to my knowledge, no business ever went under with the Soviet system but society in general grew ever poorer. Think of that Soviet system applied to the banking industry and you have the Fed.}}

He also wrote the following in March 2013:<ref>[http://lewrockwell.com/paul/paul854.html The Great Cyprus Bank Robbery]</ref>

<blockquote>Remember that under a fractional reserve banking system only a small percentage of deposits is kept on hand for dispersal to depositors. The rest of the money is loaned out. Not only are many of the loans made by these banks going bad, but the reserve requirement in Euro-system countries is only one percent! If just one euro out of every hundred is withdrawn from banks, the bank reserves would be completely exhausted and the whole system would collapse. Is it any wonder, then, that the EU fears a major bank run and has shipped billions of euros to Cyprus?

The elites in the EU and IMF failed to learn their lesson from the popular backlash to these tax proposals, and have openly talked about using Cyprus as a template for future bank bailouts. This raises the prospect of raids on bank accounts, pension funds, and any investments the government can get its hands on. In other words, no one's money is safe in any financial institution in Europe. Bank runs are now a certainty in future crises, as the people realize that they do not really own the money in their accounts. How long before bureaucrat and banker try that here?

Unfortunately, all of this is the predictable result of a fiat paper money system combined with fractional reserve banking. When governments and banks collude to monopolize the monetary system so that they can create money out of thin air, the result is a business cycle that wreaks havoc on the economy. Pyramiding more and more loans on top of a tiny base of money will create an economic house of cards just waiting to collapse. The situation in Cyprus should be both a lesson and a warning to the United States. We need to end the Federal Reserve, stay away from propping up the euro, and return to a sound monetary system.</blockquote>

In the foreward to ''Fiat Money Inflation in France'', Mr John McKay wrote the following:<ref>[http://mises.org/books/inflationinfrance.pdf ''Fiat Money Inflation in France''], Andrew Dickson White, 1912</ref>

{{quote|The story of "Fiat Money Inflation in France" is one of great interest to legislators, to economic students, and to all business and thinking men. It records the most gigantic attempt ever made in the history of the world by a government to create an inconvertible paper currency, and to maintain its circulation at various levels of value. It also records what is perhaps the greatest of all governmental efforts—with the possible exception of Diocletian's—to enact and enforce a legal limit of commodity prices. Every fetter that could hinder the will or thwart the wisdom of democracy had been shattered, and in consequence every device and expedient that untrammelled power and unrepressed optimism could conceive were brought to bear.

But the attempts failed. They left behind them a legacy of moral and material desolation and woe, from which one of the most intellectual and spirited races of Europe has suffered for a century and a quarter, and will continue to suffer until the end of time. There are limitations to the powers of governments and of peoples that inhere in the constitution of things, and that neither despotisms nor democracies can overcome.

Legislatures are as powerless to abrogate moral and economic laws as they are to abrogate physical laws. They cannot convert wrong into right nor divorce effect from cause, either by parliamentary majorities, or by unity of supporting public opinion. The penalties of such legislative folly will always be exacted by inexorable time. While these propositions may be regarded as mere commonplaces, and while they are acknowledged in a general way, they are in effect denied by many of the legislative experiments and the tendencies of public opinion of the present day. The story, therefore, of the colossal folly of France in the closing part of the eighteenth century and its terrible fruits, is full of instruction for all men who think upon the problems of our own time.}}

C.J. Maloney wrote of the desperation of Henry VIII of England to counterfeit gold by engaging charlatan-alchemists:<ref>[http://www.lewrockwell.com/maloney/maloney28.1.html The Desperation of King Henry VIII], C.J. Maloney</ref>

{{quote|Despite his formidable education and great historic reputation, the disastrous interventions into the economy, the lifelong dishonesty with the currency in his care and, most of all, his laughable attempts to bring a sorcerer into his court to conjure gold, mark the great King Henry VIII as a fool. Yet there is no reason, be warned, for anyone to feel superior to the King; one only needs to pick up a newspaper to see that though alchemy may be a dead science, it has merely taken up new forms.

This has always been and always will be, for its immortality is powered by economic man’s most dangerous, fondest wish, the one that will drive us to endless imbecilities and repeated destruction – the ardent desire to believe that you can get something for nothing. His adherence to that belief made King Henry VIII a man of his times – and ours.}}

In his treatise, ''The Ethics of Money Production'', which was published by the Mises Institute in October 2008, Jörg Guido Hülsmann presents (at pages 238-239) the following description of the perverse rise of fiat money and fractional reserve banking:

{{quote|There is no tenable economic, legal, moral, or spiritual rationale that could be adduced in justification of paper money and fractional-reserve banking. The prevailing ways of money production, relying as they do on a panoply of legal privileges, are alien elements in the capitalist [i.e., true free market] economy. They provide illicit incomes, encourage irresponsibility and dependence, stimulate the artificial centralization of political and economic decision-making, and constantly create fundamental disequilibria that threaten the life and welfare of millions of people. In short, paper money and fractional-reserve banking go a long way toward accounting for the excesses for which the capitalist economy is widely chided.

We have argued that these monetary institutions have not come into existence out of any economic necessity. They have been created because they allow an alliance of politicians and bankers to enrich themselves at the expense of all other strata of society. This alliance emerged rather spontaneously in the seventeenth century; it developed in multifarious ways up to the present day, and in the course of its development it created the current monetary institutions.

…The driving force that propelled the development of central banks and paper money was the reckless determination of governments, both aristocratic and democratic, to increase their revenue, if necessary in violation of good faith and of all established rules of commerce.}}

The father of the Deutsche Mark, Wilhelm Röpke (1899-1966) stated:<ref>[http://www.professorfekete.com/articles/AEFAmericanBasesGermanyGoldBasis.pdf The Gold Basis], Antal E Fekete</ref>

{{quote|It is not the gold standard that failed, but those in whose care it was entrusted.}}

Many [[monetary reform]]ers claim that a fiat money/fractional-reserve based banking system is inherently destructive and inevitably generates [[inflation|debasement of the currency]], extreme inequality, the destruction of the middle class<ref name="Paul_End" /> and [[Austrian Business Cycle Theory|wrenching business crises]].<ref>[http://www.marketoracle.co.uk/Article25212.html The Faults of FRB], Thorsten Polleit</ref><ref name="Paul_End" /><ref>[http://mises.org/store/Money-Bank-Credit-and-Economic-Cycles-P290C0.aspx Money, Bank Credit and Economic Cycles], Jesus Huerta de Soto, Mises Institute ISBN: 978-1-933550-39-8</ref><ref>[http://www.mises.org/Books/mysteryofbanking.pdf Murray Rothbard, ''The Mystery of Banking'']</ref><ref name="books.google.com">{{cite book |last= Brown |first= Ellen H. |title= Web of Debt |url= http://books.google.com/books?id=ILMGrEC524UC |accessdate= 2007-12-15 |year= 2007 |publisher= Engdahl Publishing|isbn= 0979560802 }}</ref><ref name="death"/><ref name="monetary.org">[http://www.monetary.org/lostscienceofmoney.html Stephen A. Zarlenga, ''The Lost Science of Money'' AMI (2002)]</ref><ref>[http://mises.org/story/3108 Sound Money], Lew Rockwell</ref><ref>[http://mises.org/story/1971 Our Money Madness], Lew Rockwell</ref><ref>[http://mises.org/rothbard/genuine.asp The Case for a Gold Dollar], Murray Rothbard</ref><ref name="twilight"/> Vladimir Z. Nuri has analyzed fractional reserve banking and considers it a form of economic parasitism.<ref>[http://econpapers.repec.org/paper/wpawuwpma/0203005.htm Fractional Reserve Banking as Economic Parasitism]</ref> Ellen Hodgson Brown has compared fractional reserve banking and the charging of compound interest on created money with cancer.<ref>[http://www.marketoracle.co.uk/Article39053.html Why Bankers Rule the World], Ellen Hodgson Brown</ref>

These views are not accepted by mainstream government-supported economists. For example David Andolfatto, Vice President in the Research Division of the Federal Reserve Bank of St. Louis, has openly called Dr. Ron Paul a "pinhead" for holding such views.<ref>[http://www.lewrockwell.com/wenzel/wenzel87.1.html Senior Fed Economist Calls Ron Paul a Pinhead], LRC</ref> He later tried unsuccessfully to delete or retract his statements and expressed his regret over making the comments.<ref>[http://www.lewrockwell.com/wenzel/wenzel92.1.html Fed Economist in Retreat], Robert Wenzel</ref>

Critics of fractional reserve banking frequently argue that since money creation requires ''loans'' from the banking system, people are required to go further into debt in order for any new money to be created. They theorize that this eventually causes [[Austrian Business Cycle Theory|credit cycle]]s (or [[Austrian Business Cycle Theory|business cycles]]) and debases the [[means of exchange]].<ref>[http://www.marketoracle.co.uk/Article25212.html The Faults of FRB], Thorsten Polleit</ref> They also argue that if debts were ever paid back, there would be no money and the economy would collapse in a debt-deflation trap.<ref>[http://www.youtube.com/watch?v=jqvKjsIxT_8 Money As Debt]</ref> They therefore argue the system is ''inherently unstable'', requiring constantly increasing injections of debt just to avoid deflationary collapse.<ref>[http://www.youtube.com/watch?v=jqvKjsIxT_8 Money As Debt]</ref> They claim this is ultimately unsustainable.<ref>[http://www.youtube.com/watch?v=jqvKjsIxT_8 Money As Debt]</ref><ref>[http://www.youtube.com/watch?v=HZAzBDDnhwg Rich Dad Advisors Discuss Food Storage]</ref>

Many critics find it problematic that banks "create money out of nothing" and consider this fundamentally immoral, akin to [[counterfeiting]]<ref>[http://www.youtube.com/watch?v=_3Mtjsjfk98 Stacy Herbert and Max Keiser: Flaming Banks] Max Keiser Quote: "Banks counterfeit money. Bernanke, Geithner... anyone in the banking business is just a... just an out of control, rogue, counterfeiting, naked short selling ''weasel''."</ref> and/or [[embezzlement]].<ref>[http://www.dailypaul.com/node/119914 Ron Paul video - fractional reserve banking is fraudulent]</ref><ref name="Paul_End" /><ref>[http://www.marketoracle.co.uk/Article25212.html The Faults of FRB], Thorsten Polleit</ref>

Some also link the alleged negative effects of fractional reserve banking with central banking<ref>[http://www.zerohedge.com/article/guest-post-qe-end-america-we-know-it QE Is The End Of America], ZeroHedge</ref> and a government-enforced "paper" or [[fiat currency]],<ref>[http://www.marketoracle.co.uk/Article27768.html The Federal Reserve Note Is Dead], Jeff Berwick</ref> which they claim allows the practice of fractional reserve banking to continue without a "natural" limitation on the growth of the [[money supply]], thereby causing inherently unsustainable "[[bubble (economics)|bubbles]]" in asset and capital markets, which are vulnerable to Ponzi-like speculation by highly leveraged [[hedge funds]] and other bank agents.<ref name="Paul_End" /><ref>[http://www.debtdeflation.com/blogs/2009/12/23/mish-on-the-fictional-reserve-system/ MISH on the Fictional Reserve System], Steve Keen</ref><ref>[http://mises.org/store/Money-Bank-Credit-and-Economic-Cycles-P290C0.aspx Money, Bank Credit and Economic Cycles], Jesus Huerta de Soto, Mises Institute ISBN: 978-1-933550-39-8</ref><ref name="books.google.com">{{cite book |last= Brown |first= Ellen H. |title= Web of Debt |url= http://books.google.com/books?id=ILMGrEC524UC |accessdate= 2007-12-15 |year= 2007 |publisher= Third Millennium Press |location= Baton Rouge, Louisiana |isbn= 0979560802 }}</ref><ref name="death"/><ref name="monetary.org">[http://www.monetary.org/lostscienceofmoney.html Stephen A. Zarlenga, ''The Lost Science of Money'' AMI (2002)]</ref><ref>[http://mises.org/story/3108 Sound Money], Lew Rockwell</ref><ref>[http://mises.org/story/1971 Our Money Madness], Lew Rockwell</ref><ref>[http://mises.org/rothbard/genuine.asp The Case for a Gold Dollar], Murray Rothbard</ref><ref name="twilight"/><ref>[http://www.marketoracle.co.uk/Article25212.html The Faults of FRB], Thorsten Polleit</ref>

Reformist economists such as [[Murray Rothbard]] support a "full reserve" banking system and criticize [[fractional reserve banking]] as inherently fraudulent.<ref>[http://mises.org/daily/5185/The-Need-for-100-Reserves The Need for 100% Reserves], Frank D. Graham</ref> [[Murray Rothbard]] held this view very strongly throughout his life.<ref name="Paul_End" /><ref>[http://www.marketoracle.co.uk/Article25212.html The Faults of FRB], Thorsten Polleit</ref> Other reformist economists are more tolerant of fractional-reserve banking and support [[free banking]] instead of full reserve banking.<ref>[http://books.google.com/books?id=DFv6OzeBWpQC&pg=PP3&dq=steven+horwitz++banking&sig=VZasp_8pGVvpQsFKMI3W9yp4AlM#PPA231,M1 Microfoundations and Macroeconomics: An Austrian Perspective], Steven Horwitz, pp. 223-232.</ref>

==Basic debate==

The economic, environmental and social effects arising from money creation through fractional-reserve banking have been subject to much heated political debate for well over two centuries.<ref name="The Forgotten War"/><ref name="books.google.com"/><ref name="death"/><ref name="twilight"/><ref>[http://www.silverbearcafe.com/private/fracbank.html Antal E. Fekete, Fractional Reserve Banking Revisited]</ref><ref>[http://news.goldseek.com/GoldSeek/1297199137.php China Inflation and Gold], Darryl Robert Schoon</ref><ref>[http://www.zerohedge.com/article/guest-post-good-bad-and-ugly-part-3 The Good, the Bad and the Ugly], James Quinn</ref><ref>[http://www.marketoracle.co.uk/Article29255.html The Collapse of Paper Money], Darryl Robert Schoon</ref><ref>[http://www.goldismoney2.com/archive/index.php/t-524.html?s=d418ff253326772a09e1a8d992da7753 Venetian Bankers and the Dark Ages]</ref>

Many Austrian economists and monetary reformers focus on the combined use of [[fiat currency]], [[fractional-reserve banking]] and [[central banking]] as a negative feature of modern monetary systems.<ref>[http://www.youtube.com/watch?v=G1l7DY8kdz0 The Fed Unspun]</ref><ref>[http://mises.org/media/4014 The Economics of Legal Tender Laws], [[Jorg Guido Hulsmann]]</ref><ref>[http://mises.org/store/Meltdown-P557.aspx ''Meltdown''], Tom Woods, Regnery Press ISBN: 9781596985872</ref> These commentators use the term "debt-based monetary system" to refer to an economic system where [[money]] is created primarily through fractional-reserve banking techniques, using the banking system.<ref>[http://mises.org/daily/4569 What Does Debt-Based Money Imply for Interest Payments?], Robert Murphy</ref><ref>[http://mises.org/daily/4631 Is Our Money Based On Debt?], Robert Murphy</ref><ref name="speech"/> This form of money is called "debt-based" because as a ''condition of its creation'' someone must go into debt in order for the money to be created and it must be paid back plus interest at some time in the future.

To some commentators, this implies that as the [[money supply]] and the economy grows, the general populace becomes increasingly indebted at the same time due to the fact that debt grows in parallel with money supply growth, and increasing interest payments (from either taxpayers or indebted consumers) are needed to pay bondholders as the money supply grows.<ref>[http://www.marketoracle.co.uk/Article28533.html The Global Debt Crisis], Ellen Hodgson Brown</ref><ref name="death"/><ref name="twilight">[http://www.marketoracle.co.uk/Article4489.html Antal E. Fekete, The Twilight of Irredeemable Debt]</ref><ref name="The Forgotten War">[http://news.goldseek.com/GoldSeek/1192819378.php America's Forgotten War Against the Central Banks], Mike Hewitt</ref>

One argument posits that since debt and the interest on the debt can only be paid in the same form of money, the total debt (principal plus interest) can never be paid in a debt-based monetary system unless more money is created through the same process.<ref>[http://www.marketoracle.co.uk/Article28533.html The Global Debt Crisis], Ellen Hodgson Brown</ref><ref>[http://www.marketoracle.co.uk/Article38581.html The Trillion Dollar Coin: What You Really Need To Know], Rudy Avizuis</ref> For example: if 100 credits are created and loaned into the economy at 10% per year, at the end of the year 110 credits will be needed to pay the loan and extinguish the debt. However, since the additional 10 credits does not yet exist, it too must be borrowed. To some, this implies that the money supply must grow exponentially at the same rate as economic growth and compounding debt in order for the monetary system to remain solvent, as economic activity would be stifled with a static volume of money when interest became due, because in a static-money world no new money could be found to be taken out of circulation to allow debtors to pay outstanding interest to creditors.<ref name="death"/><ref name="twilight"/><ref>[http://globaleconomicanalysis.blogspot.com/2011/01/steve-keen-responds-to-world-economic.html Exponential Credit], MISH,</ref><ref>[http://blog.mises.org/17737/chancellor-not-enough-gold/ Not Enough Gold], Robert Blumen</ref><ref>[http://mises.org/daily/6391/Why-the-Greenbackers-Are-Wrong Why Greenbackers Are Wrong], Thomas Woods</ref>

Others argue that there is in fact no mathematical necessity for the stock of money in a debt-based system to grow, as the "turnover" or "flow" or "velocity" of money can increase to allow for compounding interest payments.<ref>[http://mises.org/daily/4569 What Does Debt-Based Money Imply for Interest Payments?], Robert Murphy</ref><ref>[http://www.debtdeflation.com/blogs/2010/10/08/ami-talks-in-flv-format/ AMI Conference 2010], Steve Keen</ref><ref>[http://www.debtdeflation.com/blogs/2010/11/05/solving-the-paradox-of-monetary-profits-2/ Solving the Paradox of Monetary Profits], Steve Keen</ref><ref>[http://www.zerohedge.com/news/2013-02-11/occams-gold-vs-rube-goldbergs-fiat Occam's Gold]</ref><ref>[http://mises.org/daily/6391/Why-the-Greenbackers-Are-Wrong Why Greenbackers Are Wrong], Thomas Woods</ref> However this does imply that population growth would need to be positive to encourage increased spending rates or some individual consumers would have to increase their rate of spending (and decrease their savings) to expand GDP sufficiently to allow the fixed stock of money to turnover sufficiently to pay for the interest compounding on top of the debt.<ref>[http://globaleconomicanalysis.blogspot.com/2011/01/steve-keen-credit-impulse.html The Credit Impulse], Steve Keen with commentary from MISH</ref><ref>[http://mises.org/daily/4569 What Does Debt-Based Money Imply for Interest Payments?], Robert Murphy</ref><ref>[http://www.debtdeflation.com/blogs/2010/10/08/ami-talks-in-flv-format/ AMI Conference 2010], Steve Keen</ref><ref>[http://www.debtdeflation.com/blogs/2010/11/05/solving-the-paradox-of-monetary-profits-2/ Solving the Paradox of Monetary Profits], Steve Keen</ref> This may mean that Ponzi-like dynamics bubble up in "pockets" of the economy with interest payments being allowed in a fixed money economy, but these debt-fuelled bubbles of higher spending or speculation would pop and die out relatively quickly as there would be no central bank to keep the bubbles alive with further money creation.<ref>[http://mises.org/daily/4569 What Does Debt-Based Money Imply for Interest Payments?], Robert Murphy</ref><ref>[http://globaleconomicanalysis.blogspot.com/2011/01/steve-keen-credit-impulse.html The Credit Impulse], Steve Keen with commentary from MISH</ref><ref>[http://www.zerohedge.com/news/2013-02-11/occams-gold-vs-rube-goldbergs-fiat Occam's Gold]</ref>

Gold, silver and other [[precious metals]] have in the past been used as money.<ref>[http://www.zerohedge.com/news/2013-02-11/occams-gold-vs-rube-goldbergs-fiat Occam's Gold]</ref> Because of the difficulty in increasing the supply of precious metals quickly, some [[monetary reform]]ers believe a return to the [[gold standard]], or a similar system of "hard" or "real" asset-backed currency, is the only way to stabilize the growth of the money supply. These monetary reformers often refer to the gold standard and [[silver standard]] as "sound money" or "honest money".<ref>[http://mises.org/daily/4860 Money: Sound and Unsound], Mark Thornton commentary on Joseph Salerno's book</ref><ref>[http://mises.org/daily/6391/Why-the-Greenbackers-Are-Wrong Why Greenbackers Are Wrong], Thomas Woods</ref>

==Main criticisms==

In a 2003 statement to the U.S. House of Representatives, Ron Paul stated "if unchecked, the economic and political chaos that comes from currency destruction inevitably leads to tyranny".<ref name="house.gov">[http://www.house.gov/paul/congrec/congrec2003/cr090503.htm Paper Ron Paul, Paper Money and Tyranny, Speech in U.S. House of Representative, September 5, 2003]</ref>

Some economic thinkers (primarily members of the [[Austrian School]]) and political commentators believe that a debt-based monetary system amounts to a subtle form of monetary "[[fraud]]" in that it creates money "costlessly" through the use of [[fractional-reserve banking]] techniques.<ref>[http://www.mises.org/rothbard/moneyback.asp Taking Money Back, by Murray Rothbard]</ref>

Michael Rowbotham is an active proponent of [[monetary reform]], and argues that this system of [[money supply]] is perverse and inherently monopolistic and "anti-democratic", as it creates an inflationary exponential growth imperative in the economy which leads to over-centralization and environmentally damaging and unstable over-consumption. Critics such as Rowbotham argue that the indebted are forced to induce new consumers to spend their way into debt so existing loans can be repaid with new debt-created money. Failure to achieve this goal results in [[foreclosure]] for those businesses and [[insolvency]] in the banking system that leads to economic collapse due to the sudden contraction of the money supply.<ref name="death"/><ref name="Ponzi Nation">[http://www.iimagazine.com/article.aspx?articleID=1234345 Ponzi Nation]</ref> This failure is inevitable due to the fact that, eventually, debt-saturated businesses and governments will no longer be able to force individuals into further debt due to the fact that they are already debt-saturated themselves. Once this point is reached, economic collapse is inevitable without wholesale debt repudiation.

Mark Anielski as well as some political thinkers such as Rowbotham and some economists (such as Hyman Minsky, Steve Keen and Mike Shedlock) argue that this system of money supply has characteristics similar to a [[pyramid scheme]], where the newly indebted are compelled to induce others into debt to pay off their own debts.<ref>[http://globaleconomicanalysis.blogspot.com/2011/01/steve-keen-credit-impulse.html The Credit Impulse], Steve Keen with commentary from MISH</ref><ref>[http://www.lin.ca/resource/html/arpa02/PC1-FertileObfuscation.pdf ''Fertile Obfuscation: Making Money Whilst Eroding Living Capital''], 34th Annual Conference of the Canadian Economics Association, Mark Anielski</ref> It is therefore argued by a number of monetary reformers that fractional-reserve banking and the associated exponential growth of money in the economy "forces" the economy towards indebted consumerism.<ref name="books.google.com"/>

Rowbotham argues that a major negative side-effect of the debt-based monetary system is its effect on agriculture, claiming that residential development produces by far the greatest continuous injection of debt money into modern debt-based economies because banks secure loans primarily with developed property and are therefore willing to issue more debt-money against property development than any other asset class. Therefore, significant super-normal profits can be generated by re-zoning agricultural land and replacing it with low-density [[House|housing]].<ref name="death"/>
If this is correct, this trend will lead to the destruction of fertile arable land, as farmers cannot compete to retain fertile arable land from property developers at the periphery of major population centers, and as this land is then progressively re-zoned for speculative new residential development. Rowbotham predicts that the global supply of fertile arable land will systematically and catastrophically decline as perverse monetary incentives inherent in the current debt-based system favor short-term speculative land development over long-term food security, leading to a broad decline in the quality and nutritional value of agricultural produce and, eventually, a dramatic increase in the prices of many "soft" commodities - which could then lead to actual food shortages for poorer segments of the world population.<ref>[http://www.marketoracle.co.uk/Article27874.html Horrific Global Food Crisis is Looming], Michael Snyder</ref><ref>[http://www.lewrockwell.com/blog/lewrw/archives/85588.html Inflation and Bacteria], Michael Rozeff</ref><ref>[http://www.lewrockwell.com/blog/lewrw/archives/76920.html The Corporate State and the Tapeworm Economy], Catherine Austin Fitts</ref><ref name="death"/><ref>[http://www.wsws.org/articles/2007/dec2007/food-d22.shtml Naomi Spencer, World Socialist Website, "Severe food shortages, price spikes threaten world population", 22 December 2007]</ref><ref>[http://www.preparednesspro.com/blog/food-shortage-series-part-1/ Food Shortage Series],Kellene Bishop</ref> This has been referred to as the problem of "Peak Everything".<ref>[http://globaleconomicanalysis.blogspot.com/2011/03/oil-prices-are-double-edged-sword-peak.html Peak Everything?], MISH</ref><ref>[http://www.marketoracle.co.uk/Article28218.html "Peak Everything"], Jeremy Grantham</ref>

If for any reason the monetary system broke down, urban populations (nominally "rich" but poor in terms of direct access to food supply) could find basic foodstuffs either rationed or contaminated with lower quality products - or even unavailable at any price, ultimately resulting in food security becoming a major public policy issue - particularly if combined with oil supply shortages or an oil price spike,<ref>[http://www.marketoracle.co.uk/Article27874.html Horrific Global Food Crisis is Looming], Michael Snyder</ref><ref>[http://jsmineset.com/2011/02/24/in-the-news-today-791/ Collapse]</ref> as major population centers worldwide are almost entirely reliant on mass transportation of food from distant (or even foreign) locations to survive day-to-day.<ref>[http://www.marketoracle.co.uk/Article27874.html Horrific Global Food Crisis is Looming], Michael Snyder</ref><ref name="death"/><ref>[http://www.preparednesspro.com/blog/food-shortage-series-part-1/ Food Shortage Series],Kellene Bishop</ref><ref>[http://www.wsws.org/articles/2007/dec2007/food-d22.shtml Severe food shortages, price spikes threaten world population]</ref><ref>[http://www.nytimes.com/2010/12/18/business/global/18yuan.html?hpw Inflation in China]</ref><ref>[http://www.lewrockwell.com/blog/lewrw/archives/76920.html The Corporate State and the Tapeworm Economy], Catherine Austin Fitts</ref><ref>[http://jsmineset.com/2011/02/24/in-the-news-today-791/ Collapse]</ref><ref>[http://www.rickackerman.com/2011/04/bee-die-off-threatens-global-food-calamity/ Bee Die Off]</ref><ref>[http://globaleconomicanalysis.blogspot.com/2011/03/oil-prices-are-double-edged-sword-peak.html Peak Everything?], MISH</ref><ref>[http://lewrockwell.com/bonner/bonner602.html We're all going to die]</ref> In addition, fresh water (an essential commodity that is subsidised in its production by state-controlled entities in virtually every country around the world) appears to be rapidly diminishing through pollution and over-use, further threatening the global food supply in coming decades, resulting in what some commentators are describing as a global water crisis of "horrific" proportions.<ref>[http://lewrockwell.com/rep2/water-crisis-coming.html 25 Signs That a Horrific Global Water Crisis Is Coming], Economic Collapse Blog</ref><ref>[http://www.zerohedge.com/news/2013-03-06/guest-post-30-facts-coming-water-crisis-will-change-everything 30 Facts]</ref> Yemeni is at the cutting edge of these issues, having a simultaneous and inter-related water and drug crisis caused by economic stagnation, unemployment and social inequality.<ref>[http://www.youtube.com/watch?v=b0PgJ4fqpIM Khat]</ref> Recent "scandals" involving Mad Cow Disease in Britain, <ref>[http://www.centerforfoodsafety.org/campaign/food-safety/mad-cow-disease/other-resources/a-consumers-guide-to-mad-cow-disease/history-of-rendering-cattle-cannibalism-in-the-usa/ History of Rendering]</ref> the fraudulent supply of horse meat sold as beef in Europe,<ref>[http://www.theaustralian.com.au/news/world/horsemeat-scandal-a-global-conspiracy/story-e6frg6so-1226574880191 Horsemeat a global conspiracy]</ref> rat poison found in Polish dairy products<ref>[http://www.wbj.pl/article-61746-scandals-rock-polish-food-exports.html Scandals Rock Polish Food Exports]</ref> and rat meat fraudulently sold as lamb in China<ref>[http://www.zerohedge.com/news/2013-05-03/forget-horse-meat-or-fake-tuna-rat-meat-being-sold-lamb-china Rat Meat Sold as Lamb in China]</ref> could be seen as the logical conclusion of Rowbotham's analysis, as economic pressures build to systematically debase the quality of inputs throughout the food chain as producers fight the effects of cost-push inflation and try to satisfy the need for ever-increasing productivity in the industrialized food industry by systematically debasing their products until they are not fit for human consumption, but are allowed to be consumed by the authorities anyway because of the urgent need to feed the general population within their shrinking incomes.<ref>[http://www.edmundconway.com/2013/02/horse-meat-scandal-the-economics/ Horse meat scandal: the economics]</ref><ref>[http://www.theaustralian.com.au/news/world/horsemeat-scandal-a-global-conspiracy/story-e6frg6so-1226574880191 Horsemeat a global conspiracy]</ref> For example, it is alleged that Mad Cow Disease was caused by British authorities reducing heating standards in the waste meat rendering process to reduce the cost of food production in Britain. Food scandals are becoming so prevalent a new term "Food Fraud" has become popular to describe this escalating phenomenon, mirroring monetary fraud in the wider economic system.<ref>[http://www.zerohedge.com/news/2013-05-03/forget-horse-meat-or-fake-tuna-rat-meat-being-sold-lamb-china Rat Meat Being Sold as Lamb in China]</ref> If Rowbotham's analysis is correct, these food contamination and food debasement scandals will become ongoing and endemic in coming years, but may be censored by the authorities in future to avoid widespread protests.<ref>[http://www.zerohedge.com/news/2013-02-11/guest-post-more-stealth-inflation-maker%E2%80%99s-mark-slashes-alcohol-content More Stealth Inflation]</ref><ref>[http://www.edmundconway.com/2013/02/horse-meat-scandal-the-economics/ Horse meat scandal: the economics]</ref><ref>[http://www.zerohedge.com/contributed/2013-02-14/hidden-inflation-everywhere-watered-down-bourbon-horse-meat-chili Hidden Inflation Everywhere]</ref><ref>[http://en.wikipedia.org/wiki/2008_Chinese_milk_scandal Chinese Milk Scandal]</ref> This has already occurred in China with authorities trying to censor reports of toxic melamine in Chinese milk products<ref>[http://en.wikipedia.org/wiki/2008_Chinese_milk_scandal Chinese Milk Scandal]</ref> and in the UK with British authorities downplaying or delaying information relating to the huge scale of the horse meat scandal.<ref>[http://www.youtube.com/watch?v=SxZtfi2pYNo&list=SPPszygYHA9K2ZtV_1KphSugBB7iZqbFyz&index=6 Horsemeat Burgers], Max Keiser</ref> Max Keiser has made a direct connection between stealth monetary debasement throughout the banking system and stealth debasement of inputs throughout the British food chain.<ref>[http://www.youtube.com/watch?v=SxZtfi2pYNo&list=SPPszygYHA9K2ZtV_1KphSugBB7iZqbFyz&index=6 Horsemeat Burger]</ref> Quality adjustments in official CPI measurements often ''reduce'' the rate of inflation by assuming quality ''improvements'' - however no government has taken into account these food scandals in ''increasing'' the effective rate of inflation by taking into account dramatic ''reductions'' in the quality of food production.<ref>[http://www.abs.gov.au/websitedbs/webfaq.nsf/home/consumer+price+index+faqs CPI FAQs]</ref><ref>[http://www.econ.rochester.edu/people/BilsPapers/growth_qje_revision_August_2008.pdf BLS paper on CPI adjustments for quality]</ref><ref>[http://www.zerohedge.com/news/2013-03-02/first-horsemeat-trading-now-59-tuna-sold-us-isn%E2%80%99t-tuna 59% Of Tuna Isn't Tuna]</ref> If the dramatic degradation in the quality of food production was fully taken into account, it is likely that "true" inflation would be measured far in excess of official figures, and may in some instances (such as with the UK horse meat scandal) be reaching something similar to hyperinflation in some years, as food that changes from "beef" to "horse meat" is effectively a tiny fraction of the quality of the product of only a few years or months ago.<ref>[http://www.youtube.com/watch?v=SxZtfi2pYNo&list=SPPszygYHA9K2ZtV_1KphSugBB7iZqbFyz&index=6 Horsemeat Burgers], Max Keiser</ref>

Others consider that the core problem is not food security, nor overpopulation, nor environmental destruction, nor excessive carbon emissions due to non-pricing of energy producing externalities, nor excessive "specialization" of labor in the midst of monetary dysfunction, but excessive government regulation, causing capital destruction.<ref>[http://mises.org/daily/5277/When-Capital-Is-Nowhere-in-View When Capital Is Nowhere In View], Jeffrey Tucker</ref><ref>[http://www.garynorth.com/public/8071.cfm Population Growth as Propaganda], Gary North</ref><ref>[http://www.marketoracle.co.uk/Article39449.html An Orwellian America], Gordon T Long</ref>

The fundamental problem with the current monetary system that all Austrian economists agree on is that in the midst of constant credit creation and monetary dysfunction is it ''impossible'' to know what unsustainable [[malinvestment]]s are taking place in the economy, except to acknowledge that they ''must'' be taking place somewhere in the midst of unsustainable credit growth.<ref>[http://www.goldensextant.com/SavingtheSystem.html Saving the System], Robert K. Landis</ref>

===Effects on economic health: Ponzi scheme dynamics===

According to Michael Rowbotham and many Austrian theorists the expansion of money through debt is unsustainable and necessarily fuels and creates [[Austrian Business Cycle Theory|economic bubbles]].<ref>[http://mises.org/daily/5567/Hayeks-Ghost-Haunts-the-World Hayek's Ghost Haunts the World], Jeffrey Tucker</ref> This concentrates wealth in the hands of private banks as the populace is forced into [[debt]] simply to own a home and educate their children, hoping that the loans can be repaid by others going into debt in ''greater amounts'' later to purchase the assets they themselves have purchased through incurring large amounts of personal debt.<ref name="death"/> However, debt expansion leads to price appreciation of assets through speculation as the financial market becomes riskier and this process is unsustainable in the long run, with the last cycle of indebted being wiped out when they cannot find anyone to buy the assets they themselves have purchased by going into massive debt. Doug Noland, Steve Keen, Edward Chancellor, Bill Bonner and many others have compared this type of market to an enormous State-sponsored global monetary [[Ponzi scheme]].<ref>[http://www.debtdeflation.com/blogs/2008/12/13/the-worlds-biggest-ponzi-scheme/ The World's Biggest Ponzi Scheme], Steve Keen</ref><ref>[http://www.iimagazine.com/article.aspx?articleID=1234345 Ponzi Nation,"Who is Hyman Minsky?", para 6]</ref><ref>[http://www.marketoracle.co.uk/Article26678.html One Gargantuan Ponzi Scheme], Paul Hallyer</ref><ref>[http://prudentbear.com/dmdocuments/HowCouldIrvingFisherHaveBeenSoWrong.pdf How Could Irving Fisher Have Been So Wrong?], Doug Noland</ref><ref>[http://globaleconomicanalysis.blogspot.com/2010/08/former-fed-governor-mishkin-paid-124000.html Mishkin], MISH</ref><ref>[http://www.lewrockwell.com/bonner/bonner467.html Warning], Bill Bonner</ref>

The bust phase of this Ponzi-like [[business cycle]] occurs when "debt-based" money growth cannot continue because the debt levels are already at saturation levels, meaning growth in debt money slows or contracts, catching newly indebted businesses and consumers who are left out of the growth cycle, triggering a combined liquidity and solvency crisis when markets seize up due to a collapse in the artificially-supported prices in financial markets.<ref name="death"/><ref name="Ponzi Nation"/>

===Effects on the environment===
There are also critics in the left-wing and environmentalist camps who contend fractional reserve banking (by creating a necessity for indefinite [[economic growth]]) leads to environmental destruction and a sudden, catastrophic depletion of the earth's natural resources as the unsustainable, exponential consumption of the world's scarce natural resources reaches its inevitable limits.<ref>David Korten, ''Agenda For A New Economy'', Berret-Koehler, 2009</ref><ref>[http://www.monbiot.com/archives/2004/10/06/no-longer-obeying-orders/ George Monbiot], about five sixths of the way down</ref>

===Inherent problems with the system===

Some monetary reformers predict that there will be an increased incidence of financial crises in the developed world, as economic and population growth inevitably slow and as the success of financial sector lobbying results in increased tax loopholes and a reduction in effective redistributive [[tax]]es which, combined with the debt-legacy of the [[welfare state]], allows an intense and unsustainable concentration of wealth and political power in the financial services sector.<ref name="death">{{cite book |last= Rowbotham |first= Michael |title= The Grip of Death: A Study of Modern Money, Debt Slavery and Destructive Economics | year= 1998 |publisher= Jon Carpenter Publishing |isbn= 9781897766408 }}</ref><ref>[http://www.youtube.com/watch?v=TdVc40Mc9cQ&feature=related Andrew Sheng, INET presentation]</ref>

Some monetary reformers argue that perverse incentives in the financial services industry lead to collusive relationships between governments and bankers which are economically and socially destablizing in the long run.<ref>[http://mises.org/media/4014 The Economics of Legal Tender Laws], Jorg Guido Hulsmann</ref>

Given that the financial system requires ever higher levels of indebtness from the general populace for its solvency, it is vital that the indebted "victims" who must sink deeper into debt for the system to survive do so voluntarily and willingly and are not made aware of the consequences of purchasing consumables with debt money.<ref name="death">{{cite book |last= Rowbotham |first= Michael |title= The Grip of Death: A Study of Modern Money, Debt Slavery and Destructive Economics | year= 1998 |publisher= Jon Carpenter Publishing |isbn= 9781897766408 }}</ref> Some isolated politicians have previously highlighted the fact that mainstream media organizations appear to downplay or minimize the seriousness of deficit spending by government and debt-sourced spending of all kinds.<ref>[http://www.senate.gov/~budget/democratic/statements/2005/fs_reconciliationfloorstmt102005.pdf Speech by Senator Kent Conrad (D-ND) on October 20, 2005 regarding the "misleading" reporting of deficit spending by the mainstream media]</ref> Euphemisms for debt and personal and national bankruptcy associated with debt have been developed to delay a mass panic away from government bonds or debt. For example, the associated growth of debt-based derivatives during the upward phase of the debt money cycle was referred to as "[[innovation]]" in financial markets.<ref>[http://www.nytimes.com/2007/12/03/opinion/03krugman.html?em&ex=1196917200&en=ac60abcdbd977d07&ei=5087%0A Innovating Our Way to Financial Crisis, by Paul Krugman]</ref>

[[Bankruptcy]] laws differ to a small degree in different jurisdictions but in all developed economies unpaid debt results in legal penalties, property confiscation on behalf of the creditor and income [[sequestration]]. Although in Christian, Jewish and Muslim religious practice there have been traditions of debt relief or laws against [[usury]], in no modern Western jurisdiction are any debts periodically forgiven or cancelled in recognition of the inherent impossibility of repaying debts in circumstances where the debt-based monetary cycle has inevitably resulted in too little new [[debt money]] being injected into the [[money supply]] to pay for the currently outstanding debts.<ref>[http://www.nakedcapitalism.com/2007/11/new-bankruptcy-law-backfires-by.html Bankruptcy law backfires]</ref>

On a national level, if the issuance of [[government bonds]] becomes unsustainable, sovereign [[bankruptcy]] can occur - and has occurred many times in history.<ref>[http://mises.org/daily/4869 Can the Fed Become Insolvent?], Robert Murphy</ref><ref>[http://elainemeinelsupkis.typepad.com/money_matters/2007/10/greenspaniel-an.html Greenspaniel and U.S. bankruptcy]</ref><ref>[http://www.prudentbear.com/index.php/thebearslairview?art_id=10493 Dee-Fault!], Martin Hutchinson, Prudent Bear</ref> [[Sovereign debt]] crises due to the inability of nations to pay interest on [[government bonds]] have occurred frequently and regularly in the third world and less frequently (every 30 years or so) in the first world as a result of high levels of unsustainable public debt - often because private debts are assumed by a corrupt government through large private bank bailouts.<ref>[http://www.dailymail.co.uk/debate/article-1331076/Ireland-bailout-Lets-frank-7bn-bunch-liars-crooks-bunglers.html Ireland Bailout], Alex Brummer</ref><ref name="Willie_Misdiagnosis">[http://www.marketoracle.co.uk/Article24543.html QE2 and the Great Economic Misdiagnosis], Jim Willie, November 24, 2010.</ref> The [[Latin American debt crisis]] is an example of sovereign debt levels becoming unsustainable, resulting in a [[currency crisis]] and economic collapse, as [[interest rates]] rise precipitously due to the inability of the national government to attract financiers to purchase new [[government bonds]] to inject new debt money into the ailing economy.<ref name="Willie_Misdiagnosis" />

At such times, it is the responsibility of the [[IMF]] to come in as a kind of supranational [[central bank]] to mediate between the national government and international financiers.<ref>[http://globaleconomicanalysis.blogspot.com/2011/05/imf-chief-pulled-from-plane-in-new-york.html Time to Dissolve the IMF], MISH</ref> The role of the [[IMF]] as [[central bank]] to the world has similar responsibilities and risks inherent in [[central bank]]ing which are described below in relation to the role of the [[Federal Reserve]]. If the [[IMF]] repeatedly intervenes to save financiers from loss when sovereign bankruptcy occurs, this has a tendency to induce [[moral hazard]] and can encourage the financing of reckless government spending and borrowing.<ref>[http://www.rgemonitor.com/41 IMF Reform and International Lender of Last Resort, RGE Monitor]</ref><ref>[http://info.interactivist.net/article.pl?sid=02/11/07/199213&mode=thread&tid=8 Banking Bunkum, by Henry C.K. Liu]</ref><ref name="Willie_Misdiagnosis" />

A [[single currency]] regime such as the [[Euro]] can mask national liquidity or solvency crises, by ensuring that a national currency is not quickly exchangeable for another, thereby restricting the ability of national governments to depreciate their currencies and cutting off the possibility that the real value of [[government bond]] interest repayments could decline relative to other currencies.<ref>[http://www.dailymail.co.uk/news/article-1316442/Anglo-Irish-Bank-bail-Will-Irish-economic-meltdown-hit-UKs-fragile-recovery.html Irish Meltdown], UK Mail On-line,</ref><ref>[http://www.marketoracle.co.uk/Article24459.html Ireland Bailout Consequences for Britain, Portugal Next?], Nadeem Walayat</ref><ref name="Willie_Misdiagnosis" /><ref>[http://news.goldseek.com/RichardDaughty/1192374060.php The Mogambo Theory of Currency Relativity]</ref><ref>[http://www.youtube.com/watch?v=IvJEJEGzeU8&feature=player_embedded#! Putin ditches dollar], RTTV</ref> This may however increase the risk of bond default where indebted national governments cannot pay back the interest payments in the denominated common currency.<ref>[http://www.dailymail.co.uk/news/article-1316442/Anglo-Irish-Bank-bail-Will-Irish-economic-meltdown-hit-UKs-fragile-recovery.html Irish Meltdown], UK Mail On-line,</ref><ref>[http://blog.mises.org/15129/bagus-explains-the-ecb-and-the-euro/ The Tragedy of the Euro], Philipp Bagus</ref>

===Types of downturns===
{{main|Austrian Business Cycle Theory}}
[[Austrian Business Cycle Theory]] states that artificially low interest rates set by any coercive price-fixing entity will inevitably stimulate malinvestment in the wrong capital projects which will inevitably lead to an unsustainable boom followed by a bust.<ref>[http://mises.org/daily/5164/The-Cure-Low-Interest-Rates-Is-the-Disease The Cure (Low Interest Rates) Is The Disease], Thorsten Polleit</ref> However, the precise nature of the downturn and the way in which losses are allocated within the economy are both dependent on the actions government and bankers take to forgive debt or control credit and there are two main kinds of debt money contraction that can cause a collapse in the value of inflated assets.

A "credit squeeze" occurs where new debt money is difficult to access without a high [[credit rating]]. At such times marginal borrowers, or those who have borrowed at the end of any debt-induced asset bubble, get "squeezed" out of further borrowing and a contraction in the growth of new debt money occurs, triggering a slow down in the growth of inflated assets. Those assets can then be "harvested" by the [[private bank]]s through widespread [[foreclosure]] or [[bankruptcy]] and re-sold to those with the money to buy the distressed assets.<ref name="marketoracle.co.uk">[http://www.marketoracle.co.uk/Article2882.html Market Fundamentalism, by Richard C. Cook]</ref>

A "credit crunch" occurs where new debt money is not available at any [[interest rate]] - even for those with previously acceptable credit ratings - due to widespread insolvency in the banking system. At such times, it is the banking system itself that is [[insolvent]] and other financial institutions (including overseas financiers) become reluctant to lend to the domestic banking system, resulting in the domestic banking system being unable to issue loans even to credit worthy borrowers.<ref>[http://en.wikipedia.org/wiki/Credit_crunch Credit crunch], Wikipedia definition</ref>

At any stage during the downward spiral of a "credit crunch", the [[central bank]] in a modern economy can try to save the system from complete economic meltdown by purchasing (either indefinitely or temporarily) the failed debts of the private banks.<ref>[http://www.youtube.com/watch?v=PTUY16CkS-k&feature=player_embedded#! Quantitative Easing Explained]</ref><ref>[http://www.marketoracle.co.uk/Article24489.html Does the Fed Create Money?] Michael Pento</ref><ref>[http://www.telegraph.co.uk/money/main.jhtml?view=DETAILS&grid=A1YourView&xml=/money/2007/12/19/ccom119.xml ECB's mind-numbing cash injection]</ref> This involves swapping depreciating "failed" assets with hard cash, thereby allowing the banks to maintain their net asset position and continue to give the impression of solvency to their auditors and depositors. However, doing so results in cash being transferred to the private banks in exchange for [[bad debt]], thereby violating the general economic precept to avoid [[moral hazard]] and effectively makes liquid the failed lending decisions of the [[private bank]]s.<ref>[http://globaleconomicanalysis.blogspot.com/2011/06/prudently-managed-banks-victimized-by.html Prudent Banks Victimized], MISH</ref><ref>[http://www.rgemonitor.com/blog/roubini/228924/ Privatizing Profits and Socializing Losses, by Nouriel Roubini]</ref> In the U.S. banking system this is called "opening the Fed discount window", where the [[Federal Reserve]] temporarily purchases the failed investment portfolios of distressed private banks in exchange for cash. However, this rescue measure may only delay, rather than avoid, the realization of losses in the banking system, as the central bank cannot "force" new borrowing into the system to inject new debt money into the money supply. Somebody has to be a [[counterparty]] to borrow the debt money that is being offered. If all market participants realize a "[[bubble (economics)|bubble]]" has formed in assets markets, there will be few (or no) buyers for new debt money, as no one wants to borrow to buy inflated assets no one else will buy. Money markets can therefore remain illiquid even with intense [[central bank]] support.<ref>[http://www.prudentbear.com/index.php/creditbubblebulletinview?art_id=10511 Favorable or Unfavorable], Doug Noland, Prudent Bear</ref>

Furthermore, banks can go bust even with intense central bank support, if the issue is not one of liquidity, but one of solvency.<ref>[http://www.ft.com/cms/s/0/233ae764-abef-11dc-82f0-0000779fd2ac.html Central Banks have No Plan]</ref><ref>[http://www.rgemonitor.com/blog/roubini/233120 Central Banks get desperate]</ref><ref>[http://www.youtube.com/watch?v=VMngK0t5WkY $20 Trillion in Bad Debt], Max Keiser</ref><ref>[http://www.marketoracle.co.uk/Article27686.html Bernanke's QEx Money Printing Box], Gordon T. Long</ref>

===Market meddling and pushing on a string===
Some monetary economists describe the opening of the Fed discount window after the bursting of an asset bubble and swapping of "junk" with new money as "pushing on a piece of string", as this measure does not solve the key problem – creating new credit (or debt money) to keep up the growth in the money supply and maintain the required level of liquidity in credit markets.<ref>[http://www.mises.org/story/2695 Don't Discount the Fed Discount Window]</ref><ref>[http://www.federalreserve.gov/Pubs/FEDS/2004/200401/200401pap.pdf Monetary Policy in Deflation: The Liquidity Trap in History and Practice]</ref> This is because unlimited central bank money and low interest rates ''allow'' credit creation, but cannot ''force'' it into the system. In order for any new debt money to be created, someone has to ''borrow'' the excess reserves in order for the money to be injected into the system. With an endogenous money system, money is only created if someone wants to borrow money from a bank. If corporations and individuals are already heavily indebted (or insolvent after the bursting of a debt-induced bubble) there are no credit-worthy borrowers to lend to. This means there are no new buyers at the margin to keep asset prices at high levels. If there are no new marginal buyers, "liquidity" - or debt growth - dries up and volumes and prices drop suddenly, forcing liquidation and creating a sudden cascading effect in highly leveraged markets very similar to the end of an unsustainable Ponzi scheme. The only ones able to stimulate the economy are the tiny minority of bankers who have been bailed out by the central bank and even if they spent lavishly to try to "help" the economy, this would in no way compensate for the lack of spending in the general economy.

To encourage fresh borrowing, central banks generally combine these rescue measures with an interest rate cut to encourage more new borrowing to allow the existing (failed) debts to be [[liquidate]]d at or close to their original value. When [[Alan Greenspan]] repeatedly resorted to this tactic to revive illiquid [[money market]]s this became known in the market as the "[[Greenspan put]]", as the effect of these repeated reductions in interest rates was similar to a [[put option]] in the [[stockmarket]], insuring [[bank]]s' lending mistakes would be covered up by the Federal Reserve.<ref>[http://www.iie.com/publications/wp/02-1.pdf Moral Hazard and the "Greenspan Put"]</ref>

When interest rates cannot go any lower (the so-called "zero bound" monetary problem) and people still will not - or cannot - load themselves up with more debt, then to stave off a collapse of market prices due to the drying up of marginal buyers at inflated debt-saturated prices central banks have resorted to "Quantitative Easing" which is the abandonment of interest rate setting and the targeting of bulk purchases of bank assets to artificially pump up their price and keep the banking system solvent.<ref>[http://www.marketoracle.co.uk/Article38855.html QE for Dummies], Dr Martenson</ref> In addition, the Keynesian solution is to run large public deficits and indebt future generations (who, they hypothesize, are more likely to be able to pay through increased future growth).<ref>[http://www.zerohedge.com/news/2013-02-09/paul-krugman-we-should-kick-can-down-road-it%E2%80%99s-responsible-thing-do "Kick the Can Down the Road"]</ref><ref>[http://www.nytimes.com/2010/12/26/business/26view.html?_r=1&scp=1&sq=shiller&st=cse Stimulus Without More Debt], Robert Shiller</ref> Fabian socialists, and Keynesian economists such as Paul Krugman and Robert Shiller, argue that governments must take charge of the responsibility of spending more (and taking on more debt) on behalf of the public (who are too fearful to take on more debt themselves) in order to compensate for the immediate and urgent ''present'' insufficiency in total private consumption.<ref>[http://www.zerohedge.com/news/2013-02-09/paul-krugman-we-should-kick-can-down-road-it%E2%80%99s-responsible-thing-do "Kick the Can Down the Road"]</ref><ref>[http://www.nytimes.com/2011/09/05/opinion/the-fatal-distraction.html?src=me&ref=general The Fatal Distraction], Paul Krugman</ref><ref>[http://www.nytimes.com/2010/12/26/business/26view.html?_r=1&scp=1&sq=shiller&st=cse Stimulus Without More Debt], Robert Shiller</ref><ref>[http://mises.org/daily/5616/Is-the-Need-for-Stimulus-Undeniable Is the Need for Stimulus "Undeniable"?], Hunter Lewis</ref> Paul Krugman and Robert Reich are prominent advocates of the policy of spending trillions of government money to help stimulate the economy, if spending billions does not work.<ref>[http://www.realclearpolitics.com/video/2011/09/01/reich_government_has_to_spend_more_to_get_out_of_debt.html Reich: Government Has To Spend More To Get Out Of Debt]</ref><ref>[http://www.nytimes.com/2010/06/21/opinion/21krugman.html?dbk Budget Deficits], Paul Krugman</ref><ref>[http://globaleconomicanalysis.blogspot.com/2010/10/krugman-and-inevitable-i-told-you-so.html Krugman], MISH</ref><ref>[http://krugman-in-wonderland.blogspot.com/2010/11/inflation-prisoner.html The Inflation Prisoner], William Anderson</ref> For economists such as Paul Krugman, if the "more and more government spending" solution does not work initially, it is a sign that not enough government money has been spent.<ref>[http://www.lewrockwell.com/sowell/sowell44.1.html Fed Up With the Fed?], Thomas Sowell</ref><ref>[http://www.nytimes.com/2010/12/20/opinion/20krugman.html?hp When Zombies Win], Paul Krugman, NY Times</ref><ref>[http://globaleconomicanalysis.blogspot.com/2010/10/krugman-and-inevitable-i-told-you-so.html Krugman], MISH</ref> It is his view that the "deflationary" Japanese recession from 1991/2 could have been cured by the Japanese government going into even more debt than the current net debt to GDP ratio of 110%.<ref>[http://www.nytimes.com/2010/06/21/opinion/21krugman.html?dbk Budget Deficits], Paul Krugman</ref><ref>[http://www.economist.com/node/15867844 Japan's debt-ridden economy], The Economist</ref> Although some commentators have puzzled over exactly which group Krugman blames for the crisis, Krugman repeatedly calls for the government "to do more" and "spend more" as the "responsible" way out of the crisis, regardless of the true culprits or cause of the crisis.<ref>[http://www.zerohedge.com/news/2013-02-09/paul-krugman-we-should-kick-can-down-road-it%E2%80%99s-responsible-thing-do "Kick the Can Down the Road"]</ref><ref>[http://www.nytimes.com/2011/08/08/opinion/credibility-chutzpah-and-debt.html?_r=1&hp Credibility, Chutzpah and Debt], Paul Krugman</ref><ref>[http://www.thedailybell.com/2271/Shock-Krugman-Turns-on-Elites.html Shock Krugman Turns on Elites], The Daily Bell</ref><ref>[http://www.nytimes.com/2011/04/11/opinion/11krugman.html?_r=2&hp Obama Is Missing], Paul Krugman</ref> When pressed to find culprits he identifies "extremist" Republicans and, somewhat paradoxically, those who call for ''fiscal restraint'' to be the real source of the debt crisis and the downgrading of US sovereign debt.<ref>[http://www.nytimes.com/2011/08/08/opinion/credibility-chutzpah-and-debt.html?_r=1&hp Credibility, Chutzpah and Debt], Paul Krugman</ref> How ''increasing'' the debt load will solve the debt problem is never explained, apart from Krugman repeatedly stating that the "long-term" debt problem is not as important as the immediate and urgent "lack of spending" problem.<ref>[http://www.zerohedge.com/news/2013-02-09/paul-krugman-we-should-kick-can-down-road-it%E2%80%99s-responsible-thing-do "Kick the Can Down the Road"]</ref> Krugman has never advocated the simple solution of debt default as the way to solve the debt crisis, despite de-emphasizing the scale of the debt by arguing that we (mostly) "owe it to ourselves".<ref>[http://krugman.blogs.nytimes.com/2011/12/28/debt-is-mostly-money-we-owe-to-ourselves/ Debt is mostly money we owe to ourselves]</ref> If this was the case, debt default would be the easiest solution. On the other hand, Paul Krugman has yet to clearly identify a country or a time when government spending became excessive or was out of control and resulted in too much accumulation of debt and malinvestment during an economic slowdown. He has intimated that, perhaps, the Greek government may have spent too much, but he treats that as an isolated case and not applicable to the rest of Europe or the United States, despite some countries having comparable debt levels to Greece's.<ref>[http://www.nytimes.com/2011/09/12/opinion/an-impeccable-disaster.html?_r=1&hp An Impeccable Disaster], Paul Krugman</ref> He has also never explained or written about what happens ''after'' government stimulus spending inevitably stops, which Austrians argue would inevitably result in an even bigger slump if it is not continually replaced with something similar or bigger.<ref>[http://krugman.blogs.nytimes.com/2013/05/09/the-moral-equivalent-of-space-aliens/ Space Aliens], Paul Krugman. Quote: "To almost everyone’s surprise, Japan — Japan! — has emerged as the advanced country most willing to break with austerian orthodoxy and try a combination of aggressive monetary and fiscal stimulus. The verdict on Abenomics is, of course, still out, although early indications are good. But how did this happen? David Pilling , writing in the FT, suggests that it was the double shock of the 2011 tsunami and China’s overtaking of Japan as the number 2 economy by market value. These shocks, he argues, broke through the fatalism and convinced the Japanese elite that something must be done. Long-time readers know that I once joked that what we needed in America was a fake threat from space aliens, which would jolt us into action on stimulus; '''if the aliens were later revealed as a hoax, no matter'''. Well, it looks as if Japan has found the moral equivalent of space aliens. Good for them." (emphasis added)</ref> If further attempts at artificial government-induced "stimulus" ''are'' attempted, Austrians argue that this pointless exercise would simply further distort capital structures throughout the economy. They therefore see the slump as curative, even if it results in bank runs and financial crises. They see light at the end of the depression, once the re-pricing of capital goods and financial assets returns the economy to a sound, stable footing - provided ''no bailouts occur, debts are liquidated and reduced or cancelled and provided asset prices are permitted to fall''.<ref>[http://www.zerohedge.com/news/guest-post-keynesian-solutions-after-total-failure-try-try-again Keynesian Solutions Total Failure]</ref><ref>[http://dailyreckoning.com/the-pain-of-restoring-investor-confidence/ The Pain of Restoring Investor Confidence], Bill Bonner</ref><ref>[http://dailyreckoning.com/government-spending-and-the-path-to-money-printing/ Government Spending and the path to Money Printing], Bill Bonner</ref><ref>[http://www.prudentbear.com/index.php/featuredcommentaryview?art_id=10485 Krugman Is Eating America Alive], Neeraj Chaudhary, Prudent Bear</ref><ref>[http://www.marketoracle.co.uk/Article25163.html Keynesian models], Robert Murphy</ref><ref>[http://krugman-in-wonderland.blogspot.com/2010/11/inflation-prisoner.html The Inflation Prisoner], William Anderson</ref><ref>[http://www.lewrockwell.com/north/north925.html Yes, Virginia, There Really Is a Free Lunch], Gary North</ref><ref>[http://mises.org/daily/5257/They-Want-Us-to-Love-the-Fed They Want Us to Love the Fed], William L. Anderson</ref><ref>[http://lewrockwell.com/rockwell/many-collapses-of-keynesianism189.html The Many Collapses of Keynesianism], Lew Rockwell,</ref>

Although there is active debate as to whether Keynesian "stimulus" policy (spending money and thereby indebting future generations, with the government spending debt-sourced money on projects the private sector would not touch) can actually help the economy long term,<ref>[http://www.mises.org/daily/6357/Feds-Policies-Expose-Mainstream-Fallacies Mainstream Fallacies], Frank Shostak</ref><ref>[http://www.zerohedge.com/news/guest-post-keynesian-solutions-after-total-failure-try-try-again Keynesian Solutions Total Failure]</ref><ref>[http://dailyreckoning.com/the-pain-of-restoring-investor-confidence/ The Pain of Restoring Investor Confidence], Bill Bonner</ref><ref>[http://dailyreckoning.com/government-spending-and-the-path-to-money-printing/ Government Spending and the path to Money Printing], Bill Bonner</ref><ref>[http://www.prudentbear.com/index.php/featuredcommentaryview?art_id=10485 Krugman Is Eating America Alive], Neeraj Chaudhary, Prudent Bear</ref><ref>[http://www.marketoracle.co.uk/Article25163.html Keynesian models], Robert Murphy</ref><ref>[http://krugman-in-wonderland.blogspot.com/2010/11/inflation-prisoner.html The Inflation Prisoner], William Anderson</ref><ref>[http://www.lewrockwell.com/north/north925.html Yes, Virginia, There Really Is a Free Lunch], Gary North</ref><ref>[http://mises.org/daily/5257/They-Want-Us-to-Love-the-Fed They Want Us to Love the Fed], William L. Anderson</ref><ref>[http://lewrockwell.com/rockwell/many-collapses-of-keynesianism189.html The Many Collapses of Keynesianism], Lew Rockwell,</ref> there is no argument that this would undoubtedly help the present group of private bankers, as increased income from the interest payments on new government bond issuance offsets the decline in private sector debt and allows banks to survive when otherwise they may face collapse due to the fatal impairment of their balance sheets through private debt write-offs after an unsustainable debt-fuelled bubble bursts.<ref>[http://georgewashington2.blogspot.com/2010/08/quantitative-easing-wont-help-economy.html QE won't help the economy]</ref><ref>[http://moneymorning.com/2010/11/19/federal-reserves-quantitative-easing-strategy-save-the-us-economy/ QE won't save the economy]</ref>

As government debt is effectively an asset on the books of the banks, increasing Treasury bond issuance necessarily increases the profitability and net asset position of the debt-issuing banks - at least until government insolvency or mass tax evasion renders the value of those bonds worthless.<ref>[http://www.marketoracle.co.uk/Article25313.html Asset Speculation and Capital Destruction], Jim Willie</ref><ref>[http://www.prudentbear.com/index.php/featuredcommentaryview?art_id=10485 Krugman Is Eating America Alive], Neeraj Chaudhary, Prudent Bear</ref>

Perhaps in recognition that increasing debt to solve a debt crisis does not work even in the short term, in early 2013 Krugman resorted to advocating the coining of a debt-free trillion dollar platinum coin to solve the debt crisis and revive the economy.<ref>[http://www.thenewamerican.com/economy/economics/item/14238-obama%E2%80%99s-trillion-dollar-coin-exposes-federal-reserve-scam Obama’s Trillion-Dollar Coin Exposes Federal Reserve Scam], Alex Newman, ''New American''</ref><ref>[http://webofdebt.wordpress.com/2013/01/18/the-trillion-dollar-coin-joke-or-game-changer/#more-5323 The Trillion Dollar Coin], Ellen Hodgson Brown</ref> Some Austrians have argued Krugman's support of the trillion dollar coin is the logical ''reductio ad absurdum'' of Keynesian economics.<ref>[http://bastiat.mises.org/2013/01/trillion-dollar-coins-and-alien-invasions/ Trillion Dollar Coins and Alien Invasions], Daniel Sanchez</ref>

===Inequities in the debt-based monetary system===
Many inequities arise because of the damage an overly leveraged financial system and big spending government can have on the real economy.<ref>[http://www.marketoracle.co.uk/Article26581.html Ten Reasons The Banksters Got Away With It], Danny Schechter</ref><ref>[http://www.marketoracle.co.uk/Article28949.html United States of Denial], James West</ref> The standard government strategy to help the banks out of the "tailspin" of an insolvency crisis follows a standard chronology:

The government first tries to stimulate the economy and spend money into the markets directly without individuals needing to borrow and spend, thereby "inflating" its way out of economic crisis by causing asset prices to rise and bank balance sheets to appear solvent. It currently does this principally by borrowing newly created money from the central bank and then spending this new money on projects that the private sector is not already engaged in.<ref>[http://www.marketoracle.co.uk/Article25964.html QE is Nothing New], Mike Hewitt</ref><ref>[http://www.mises.org/daily/6357/Feds-Policies-Expose-Mainstream-Fallacies Mainstream Fallacies], Frank Shostak</ref>

Unfortunately, there is no easy solution to an economy-wide insolvency crisis caused by excessive credit expansion.<ref>[http://www.zerohedge.com/news/2013-11-07/marc-faber-warns-karl-marx-was-right Karl Marx Was Right], Marc Faber</ref><ref>[http://www.prudentbear.com/index.php/creditbubblebulletinview?art_id=10511 Favorable or Unfavorable], Doug Noland, Prudent Bear</ref> In a sound money system the credit would not have been created, so dealing with the problem once created is inherently flawed. If a slow down of money and credit occurs, this exposes those who came late to the boom and transfers assets to the banking system via widespread insolvency. If the central bank encourages even more lending or the government spends more money this creates more distortions and uncertainties in the market, hampering long term investment. Government spending is often attempted as a way to stave off widespread insolvencies but this only further distorts the economy through widespread malinvestment.<ref>[http://mises.org/store/Rollback-P10449.aspx ''Rollback''], Thomas Woods</ref> Later, after the immediate crisis, when tax receipts from the private sector decline due to reduce private investment, governments are often forced to reduce basic social services or welfare to the poor to pay for the increased bond payments to bankers and other wealthy investors, making those least responsible and least able to pay for the crisis suffer wrenching economic hardship due to excessive public and private debt/credit creation.<ref>[http://www.marketoracle.co.uk/Article26581.html Ten Reasons The Banksters Got Away With It], Danny Schechter</ref><ref>[http://mises.org/store/Rollback-P10449.aspx ''Rollback''], Thomas Woods</ref>

Antal E. Fekete compares quantitative easing to the repeated supply of opium by an immoral drug dealer to a dependent drug addict:<ref>[http://www.marketoracle.co.uk/Article26339.html Silver and Opium], Antal E. Fekete</ref>

{{quote|The explanation for this self-destructing behavior is the addictive, debilitating and mind-corrosive nature of paper money, in direct analogy with that of opium. The high caused by administering the opium pipe to the patient (read: administering QE) had to be repeated when the effect faded by a fresh administration of more opium (read: more QE2).}}

Aside from the [[moral hazard]] issue, the key risk with [[quantitative easing]] is that the [[central bank]] exposes the financial system to disruptive inflation, as the growth in the [[money supply]] spirals out of control due to the need to save the [[bank]]s from themselves.<ref>[http://www.lewrockwell.com/north/north961.html Tiger], Gary North</ref><ref>[http://www.marketoracle.co.uk/Article27530.html The Fed Obliterates the Savings Ethic], Douglas French</ref> This eventually tends to precipitate a currency and/or government bond crisis, as the debt-based currency becomes completely dysfunctional when either the currency becomes worthless or when debtors - including government debtors - cannot even pay interest on the debt money.<ref>[http://www.marketoracle.co.uk/Article25964.html QE is Nothing New], Mike Hewitt</ref><ref>[http://www.marketoracle.co.uk/Article25313.html Asset Speculation and Capital Destruction], Jim Willie</ref><ref>[http://www.swlearning.com/economics/hall/hall-lieb2e-upd/ppt_lecture/exchange_rate_macro_policy.ppt Exchange Rates and Macroeconomic Policy]</ref><ref>[http://www.sciencedirect.com/science?_ob=ArticleURL&_udi=B6VGT-41WBFRG-1&_user=10&_rdoc=1&_fmt=&_orig=search&_sort=d&view=c&_acct=C000050221&_version=1&_urlVersion=0&_userid=10&md5=4e89075114dcdb58b503172ff1801bd2 Central Bank Intervention]</ref><ref>[http://www.federalreserve.gov/newsevents/speech/mishkin20071026a.htm Financial Instability and the Federal Reserve as a Liquidity Provider, by Frederic S. Mishkin]</ref>

For these reasons, a collapse in confidence in the [[solvency]] of the domestic banking system (and the central government) is one of the most complex and difficult policy issues any central government can face.<ref>[http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100008812/irelands-debt-servitude/ Ireland's Debt Servitude], Ambrose Evans-Pritchard, UK Telegraph</ref> If the central bank continues to try to save the current players in the banking sector by continually printing money and inflating its way out of the crisis, at some point hyperinflation suddenly appears, and has appeared many times in history.<ref>[http://mises.org/daily/4869 Can the Fed Become Insolvent?], Robert Murphy</ref><ref>[http://blog.mises.org/14626/quantitative-easing-explained/ Quantitative Easing Explained], YouTube video</ref>

Some commentators have observed that the media and the Fed have to constantly come up with new terms (such as "quantitative easing") to hide the fact that they are simply repeating the same failed policy of monetary inflation that corrupt sovereigns have deployed at the end of failed regimes many times over the millenia.<ref>[http://www.marketoracle.co.uk/Article25679.html Many Euphemisms for Money Creation], Thorsten Polleit</ref> This is also now referred to by some [[monetary reform]]ers and [[economist]]s as "socialism for the rich and capitalism for the poor", as many indebted [[consumers]] will still lose their [[house]]s and be declared [[bankrupt]] regardless whether or not the central bank intervenes to save marginal lenders who have been made [[insolvent]] through their mis-timing of the [[credit cycle]].<ref>[http://www.youtube.com/watch?v=ny6YI2JCP9Q&feature=player_embedded#at=147 Blood Starts Flowing on the Streets], Max Keiser interview with Gerald Celente</ref><ref>[http://www.rgemonitor.com/blog/roubini/228924/ Privatizing Profits and Socializing Losses, by Nouriel Roubini]</ref><ref>[http://www.beearly.com/pdfFiles/Satyajit%20Das.pdf Regulatory Debauchery by Satyajit Das]</ref> Future generations of innocent taxpayers may ultimately finance any [[bail out]] of reckless lenders, as the money used to fund any [[bail out]] will be funds diverted from the general revenue of the central government.<ref>[http://www.ft.com/cms/s/0/f4cf8426-654d-11dc-bf89-0000779fd2ac.html A run on the bank]</ref>

In times of crisis, some bankers still refer to [[Walter Bagehot]]'s 1873 commentary on monetary crises, ''Lombard Street'', in an attempt to gain insights into the way in which central bankers should revive illiquid banking systems.<ref>[http://www.prudentbear.com/index.php/thebearslairview?art_id=10513 The Evils of Crony Capitalism], Martin Hutchinson</ref><ref>[http://blogs.ft.com/economistsforum/2010/04/a-history-lesson-from-lombard-street-for-wall-street-in-2010/ History Lesson from Lombard Street], Roger Farmer, Ft.com</ref> However this old text may be outdated in circumstances where the community's debt limits have been reached and where the banking crisis arises from insolvency or environmental depletion rather than illiquidity.<ref>[http://www.youtube.com/watch?v=0KInB2rvgaY Eco Eco Disaster], Keiser Report</ref><ref name="Willie_Misdiagnosis" /><ref>[http://www.prudentbear.com/index.php/creditbubblebulletinview?art_id=10511 Favorable or Unfavorable], Doug Noland, Prudent Bear</ref> A prime example where aging demographics combined with reckless bank lending in a purely fiat debt-based monetary system resulted in economic problems which no amount of money printing or government spending could fix can be found in the case of the [[Japanese asset price bubble]].<ref>[http://www.economist.com/displaystory.cfm?story_id=10286992 The Japanese and American Bubbles: Been There, Done Some of That]</ref> Some believe the West will repeat the mistakes of the Japanese and the result will be worldwide monetary disorder and instability and economic decline.<ref>[http://dailyreckoning.com/destiny-is-demography/ Destiny is Demography], Bill Bonner</ref><ref>[http://www.economist.com/displaystory.cfm?story_id=10286992 The Japanese and American Bubbles: Been There, Done Some of That]</ref><ref>[http://www.prudentbear.com/index.php/creditbubblebulletinview?art_id=10508 Monetary Disorder], Doug Noland</ref><ref>[http://www.prudentbear.com/index.php/creditbubblebulletinview?art_id=10571 Crumbling Pillars], Doug Noland. Quote: "Whether it’s monetary or fiscal policy - at home or abroad – there seems to be confirmation everywhere that policymaking has become largely ineffectual and, increasingly, incapacitated. This is fundamental to my bearish thesis. With each passing market day it seems to take a greater leap of faith to believe that additional monetary and fiscal stimulus will ameliorate a sovereign debt crisis fomented by ultra-loose monetary and fiscal policies. Increasingly, it appears impossible for policies that fomented monetary instability to now somehow engender a return to market stability. Liquidity-challenged global markets are convulsing through a problematic period of de-risking and de-leveraging, and once such a process commences it basically has to run its course. Efforts to intervene in the marketplace, as we’ve been witnessing, are likely to beget only greater uncertainty and instability."</ref><ref>[http://www.youtube.com/watch?v=zbQq33iTsrw Rigged bank rates]</ref>

===Debt Saturation, Unstable Markets and the Keynesian Endpoint===

Keynesians often refer to Keynes' dictum "In the long run we are all dead" to justify artificially low interest rates and short-term stimulus spending by government to "kick start" a stalled economy where pre-existing private debt levels have caused spending to collapse. Tyler Cowen has responded to this Keynesian rejoinder with the following response:<ref>[http://www.nytimes.com/2011/03/06/business/06view.html The Fiscal Illusion], Tyler Cowan</ref>

{{quote|The famous Keynesian rejoinder, “In the long run we are all dead,” is less comforting when that long run comes into sight. Short-run planning is a hard carousel to stop, especially when there are frequent election cycles, but the federal government must act soon...

The technocratic Keynesian recommendation was to run deficits in bad times and surpluses in good times. But except for one stretch during the Clinton administration, this notion has been broken since the early 1980s. In the United States, at least, Keynesian economics has failed to find the necessary political institutions to enact and sustain a wise version of the theory.

Now that fiscal constraints are starting to bite, many politicians are afraid to reform or even to discuss changes in the largest problem areas...

Fiscal austerity may sometimes sound like a dogmatic religion, but fixed principles often help us do the right thing, especially when temptation beckons. Professor Buchanan argued that the real choice was between a religion of budget balance and a rule of illusion.

...the rigor of the numbers will soon sweep away the fiscal illusion. The only question is whether we will end the charade on our own terms or continue to play the fool.}}

Nassim Taleb posits that with increasing debt comes increasing fragility as markets end up standing on a "knife-edge" between precipitous currency devaluation due to money printing and widespread insolvency/depression due to slowing organic money supply growth.<ref>[http://www.zerohedge.com/news/2013-01-25/taleb-skin-game-and-his-disdain-public-intellectuals Nassim Taleb Interview on Anti-Fragile]</ref> It therefore becomes increasingly difficult for central banks to control volatility in heavily indebted world markets, until it ultimately becomes impossible to control.<ref>[http://www.zerohedge.com/news/2013-01-25/taleb-skin-game-and-his-disdain-public-intellectuals Nassim Taleb Interview on Anti-Fragile]</ref>

No current commentator predicts bankers, politicians or government employee unions will spontaneously reform themselves.<ref>[http://www.lewrockwell.com/lewrockwell-show/2011/03/27/193-gold-guns-and-getaway-plans/ Gerald Celente interview with Lew Rockwell]: Lew Rockwell: "When do you see social unrest coming to this country?" Gerald Celente: "I see more crime happening in this country, and social unrest at a much lower level. The people in this country don't have what it takes... This is a country of soccer mommies boys. We're prescription drug-addicted and we're junk food fat... Look at the way they dress, look at the way they talk, look how the Nation's become so Snooki-stupid."</ref> Noted commentator Bill Bonner and others have described politicians, welfare recipients, bankers and other tax beneficiaries as economic "zombies" obsessed with preserving their own coercively acquired incomes and unable to adapt to new economic realities. He has predicted that the "zombies" will continue to "steal" as much as possible and parasitically live off the productive efforts of others until the whole monetary system collapses.<ref>[http://dailyreckoning.com/the-coincidental-rise-of-oil-and-the-monetary-base/ The Coincidental Rise of Oil and the Monetary Base], Bill Bonner</ref><ref>[http://dailyreckoning.com/california-the-greece-of-the-us-financial-crisis/ California: The Greece of the U.S.], Bill Bonner</ref><ref>[http://dailyreckoning.com/zombies-born-of-government-spending/ Zombies Born of Government Spending], Bill Bonner</ref><ref>[http://www.zerohedge.com/article/not-program-salvage-greek-economy-its-program-pillage-bankruptcy Pillage Before Bankrupcty], Washington's Blog</ref> Some commentators have criticized so-called "zombie" bureaucracies such as the TSA as not only deadweights on the real productive economy, costing millions of tax dollars each year; their very existence hinders economic productivity.<ref>[http://mises.org/daily/5611/TSA-and-Unproductive-Labor TSA and Unproductive Labor], James E. Miller</ref> It is alleged that once these organizations are created and fed by government fiat, these "zombies" never die because there is no natural market mechanism to provide the necessary feedback signalling that they are unwanted by consumers. They grow only because they survive through government bureaucratic support and largesse - which comes from coercively acquired tax dollars or central bank produced fiat money. It is argued that the richest parasitic "zombies" (such as the CEOs and shareholders of the private security firms servicing the TSA's multi-million dollar government contracts) will continue to suck as much wealth from the productive economy as possible and then move on to the next host country with their real wealth converted into land, precious metals and jewels and other real assets.

The difficulty with any attempt at reform measures is that the "Ponzi" elements of finance are inextricably tied to pension funds and "real" elements in the economy, making it impossible to eliminate the "cancer" without damaging the wealth-creating structures as well.<ref>The term "cancer" is specifically mentioned in [http://www.pytheas.net/docs/Laissez-faire-and-policymakers.pdf Laissez-faire, investment banks and policy makers], Pytheas Market Focus, August 2009</ref><ref>[http://www.telegraph.co.uk/finance/comment/jeffrandall/8436123/We-must-call-the-bluff-of-the-big-bad-banks.html We must call the bluff of the big banks], Jeff Randall</ref><ref name="Repudiating the National Debt"/><ref>[http://www.youtube.com/watch?v=1zMv4Offm_8&feature=player_embedded#at=1341 Max Keiser Interview with Alex Jones]</ref><ref>[http://www.buildfreedom.com/tl/rape3.shtml Economic Rape of America]</ref><ref>[http://www.youtube.com/watch?v=zbQq33iTsrw Rigged bank rates]</ref> Commentator Max Keiser has also referred to "zombie" bankers as "The Walking Dead"<ref>[http://www.youtube.com/watch?v=23_S5etzSP0 Resident Evil Zombie Banks!]</ref> and has coined the term "Suicide Banking" to describe the paradoxical situation where virtually every politician and economist acknowledges that "Too Big To Fail" is a dysfunctional policy but no one has a viable solution, given that the banking system is "rigged to blow" if threatened.<ref>[http://www.youtube.com/watch?v=PCRXz5oOQVY&feature=player_embedded Suicide Bankers], Max Keiser</ref> He also refers to the current crisis as a fight to the death not between countries or ethnic groups or political ideologies but between future-oriented, prudent and conservative "Savers" on one side and present-focused, imprudent and overconsuming "Speculators" on the other.<ref>[http://www.youtube.com/watch?v=jzzIqi2sbQY&feature=player_embedded US flashing Orange]</ref>

Many non-mainstream financial commentators believe the U.S. and the E.U. will soon experience terminal financial crises, but there is vigorous on-going debate amongst numerous commentators regarding whether this terminal currency crisis will end in hyperinflation and currency destruction (making government bonds worthless) or repeated bouts of deflation and depression (making government bonds more valuable).<ref name="Landis_Reprieve" /><ref>[http://www.marketoracle.co.uk/Article28148.html How to Keep a Damaged Financial and Economic System Afloat?], Bob Chapman</ref><ref>[http://news.goldseek.com/GoldSeek/1305306000.php Winning in the Hyperinflation/Deflation War], Deepcaster LLC</ref><ref>[http://www.marketoracle.co.uk/Article27733.html Compound Inflation], John Mauldin</ref><ref>[http://www.lewrockwell.com/north/north973.html Rick Ackerman Defects], Gary North</ref><ref>[http://globaleconomicanalysis.blogspot.com/2011/04/no-miracle-cures-from-inflation.html Impossible to Inflate Out of this Mess], MISH</ref><ref>[http://globaleconomicanalysis.blogspot.com/2009/06/big-inflationist-scare.html The Big Inflationist Scare], MISH</ref><ref>[http://globaleconomicanalysis.blogspot.com/2010/09/debating-flat-earth-society-about.html Debating the Flat Earth Society About Hyperinflation], MISH</ref><ref>[http://globaleconomicanalysis.blogspot.com/2009/01/peter-schiff-was-wrong.html Peter Schiff Was Wrong], MISH</ref><ref>[http://www.marketoracle.co.uk/Article27726.html Deflation Threat is Still Alive], EWI</ref><ref>[http://www.marketoracle.co.uk/Article27791.html Can We Give The Hyperinflation Thing a Rest?], Mike Whitney</ref> Most - but not all - Austrian commentators now believe the denouement will inevitably result in hyperinflation and render the U.S. dollar near-worthless in real terms, as U.S. bond and dollar holders compete to offload excess holdings in the face of massive ongoing issuance.<ref>[http://www.marketoracle.co.uk/Article29393.html US Dollar Supply and Demand], Jim Willie CB</ref><ref>[http://fofoa.blogspot.com/2011/04/deflation-or-hyperinflation.html Deflation or Hyperinflation?], FOFOA</ref><ref>[http://maxkeiser.com/2011/04/25/ding-ding-ding-its-all-over-rick-ackerman-concedes-hes-been-wrong-and-joins-the-hyperinflationist-camp/ It's all over! Rick Ackerman Concedes!], Max Keiser</ref> Mike Shedlock and Antal E. Fekete are amongst a small group of deflationists who believe contracting credit will continue to have a deflationary impact on the economy, causing government bonds to become even more valuable over time.<ref>[http://globaleconomicanalysis.blogspot.com/2011/05/hyperinflation-nonsense-in-multiple.html Hyperinflation Nonsense], MISH</ref><ref>[http://globaleconomicanalysis.blogspot.com/2011/04/no-miracle-cures-from-inflation.html No Miracle Cures from Inflation], MISH</ref><ref>[http://www.julianmidwinter.com.au/ The Federal Reserve as an engine of deflation], Antal E. Fekete</ref><ref>[http://globaleconomicanalysis.blogspot.com.au/2012/08/preposterous-falsehoods-from-gary-north.html Falsehoods from Gary North], MISH</ref>

It should be noted that few hyperinflationists can explain the ''precise mechanism'' by which massive amounts of new credit money will be injected into the economy. There has been no detailed explanation from the hyperinflationists regarding how, with so few potential credit-worthy borrowers (including governments), the new money (via the issuance of new debt) will be injected into the economy in sufficient volume to trigger hyperinflation in the absence of extreme government policies (such Congress authorizing every citizen to be issued with $30,000 vouchers, or a civil war, or other natural catastrophe).<ref>[http://globaleconomicanalysis.blogspot.com/2011/09/bernankes-waterloo-midst-of.html Bernanke's Waterloo], Mike Shedlock</ref>

Gary North is one of the few Austrians who does not predict the extremes of either hyperinflation or deflationary depression, but rather expects a continuation of steady, moderate price inflation encouraged and controlled by the Federal Reserve, against a background of ongoing extreme boom-busts in the real economy and the slow but systemic impoverishment of the middle class.<ref>[http://lewrockwell.com/north/north1031.html Mass Inflation, Yes; Hyperinflation, No], Gary North</ref>

Austrian commentator Robert K. Landis believes there will be a combined deflationary/inflationary catastrophe.<ref>[http://www.goldensextant.com/SavingtheSystem.html Saving The System], Robert K. Landis</ref>

Leaving aside the debate between deflationists and hyperinflationists, and in stark contrast to the predictions of deflationary or hyperinflationary catastrophe from the Austrians, monetarist, Keynesian and neo-classical economists regard the current financial system as benign and the current financial distress as temporary and not structural in nature.<ref>[http://www.marketoracle.co.uk/Article35922.html Who do You Trust?], James Quinn</ref> Most advocate "tweaking" of government policy (such as temporary increases in government spending) to get us out of the current crisis. No mainstream economist identifies the problem as fundamental or structural and no mainstream economist advocates a return to full reserve banking, the gold standard or free banking. Indeed, most financial analysts still use the normal distribution - or "Bell Curve" - to represent the likely distribution of future returns in financial markets.<ref>[http://seekingalpha.com/article/163271-rethinking-alpha-and-beta Rethinking Alpha and Beta], Paul Amery</ref> This continues despite extensive research demonstrating that the normal distribution does not apply to financial market returns, which display so-called "fat tail" distributions, with much more volatlity at the extremes than the normal distribution would predict.<ref>[http://www.bearcave.com/bookrev/misbehavior_of_markets.html The Misbehavior of Markets], Ian Kaplan</ref> The Austrian view - that the economy will either slide into depression or hyperinflation under the stresses of the current debt-based monetary monetary system - may be supported by more recent analysis of actual financial market behavior under conditions of high debt and extreme stress.<ref>[http://mises.org/daily/5352/What-Mises-Can-Teach-the-Quants What Mises Can Teach the Quants], Daniel James Sanchez</ref><ref>[http://lewrockwell.com/north/north990.html The Next Financial Crisis], Gary North</ref><ref>[http://www.debtdeflation.com/blogs/2011/06/11/dude-where%E2%80%99s-my-recovery/ Where's My Recovery?], Steve Keen</ref> And recently even mainstream economists, such as senior IMF advisor Dr Robert Shapiro, now openly acknowledge that the inter-dependencies created by the issuance of Credit Default Swaps and other risk-related financial products by reckless under-capitalized banks has created a situation of extreme global financial vulnerability, where the world is only weeks away from a complete and total financial "meltdown".<ref>[http://maxkeiser.com/2011/10/07/imf-advisor-says-we-face-a-worldwide-banking-meltdown/ IMF Advisor Says We Face a Worldwide Banking Meltdown], BBC. Quote, Dr Robert Shapiro: "If they (EU governments) cannot address this in a credible way, I believe that in perhaps two to three weeks we will have a meltdown in sovereign debt which will produce a meltdown across the European banking system - we're not just talking about a relatively small Belgian bank - we're talking about the largest banks in the world - the largest banks in Germany, the largest banks in France - that will spread. It will spread to the United Kingdom - in part through sovereign debt problems in Ireland - it will spread ''everywhere'' because the global financial system is so inter-connected they are each counter...''all'' those banks are counter-parties to every significant bank in the United States and in Britain and in Japan and around the world! This would be a crisis that would be, in my view, more serious than the crisis in 2008."</ref> John Butler of Amphora has observed that "business cycles" have become "financial cycles" with central bank manipulation of markets, and these cycles have become increasingly violent and unstable, with shorter durations and increasing frequency.<ref>[http://maxkeiser.com/2013/05/16/kr445-keiser-report-sacred-dow/ Sacred Dow]</ref> To him, this signals the dying stages of a failed system, much like a spinning top slowing down and oscillating more frequently and more violently from side to side before coming to a sudden stop. According to John Butler, increases in stock prices are not a sign the economy is recovering, but is a sign of central bank-induced inflation - the first stages of currency collapse.<ref>[http://maxkeiser.com/2013/05/16/kr445-keiser-report-sacred-dow/ Sacred Dow]</ref>

Regardless whether the government chooses hyperinflation or periodic deflationary depression as the way out, throughout history, only two real alternatives occur in the midst of economic or financial crisis: ever greater centralization (often on a "higher level") or disintegration of the core power structures and (eventually) rejuvenation.<ref>[http://www.telegraph.co.uk/comment/columnists/janetdaley/8770696/The-European-dream-lies-in-ruins.html The European dream lies in ruins], Janet Daley, UK Telegraph</ref><ref>[http://www.zerohedge.com/article/greeces-ultimatum-bailout-bankers-or-loss-sovereignty Greece's Ultimatum], ZeroHedge</ref><ref>[http://www.lewrockwell.com/north/north966.html Wealth Through Decentralization], Gary North</ref><ref>[http://mises.org/store/Rollback-P10449.aspx ''Rollback''], Thomas Woods</ref><ref>[http://blog.mises.org/9321/crisis-and-leviathan/ Crisis and Leviathan], Robert Higgs</ref><ref>[http://mises.org/store/Money-Bank-Credit-and-Economic-Cycles-P290C0.aspx Money, Bank Credit and Economic Cycles], Jesus Huerta de Soto, Mises Institute ISBN: 978-1-933550-39-8</ref><ref>[http://mises.org/store/Meltdown-P557.aspx ''Meltdown''], Tom Woods, Regnery Press ISBN: 9781596985872</ref><ref>[http://mises.org/media/4014 The Economics of Legal Tender Laws], [[Jorg Guido Hulsmann]] (includes detailed commentary on centralization during crises)</ref><ref>[http://www.amazon.com/Warwolves-Iron-Cross-International-Relationships/dp/146358380X/ref=sr_1_33?ie=UTF8&qid=1316347713&sr=8-33 Warwolves of the Iron Cross], Veronica Kuzniar Clark</ref> Accordingly, many of the more extreme monetary reformers and [[conspiracy theorists]] anticipate repeated and ever more desperate attempts at ''higher-order centralization'',<ref>[http://www.telegraph.co.uk/comment/columnists/janetdaley/8770696/The-European-dream-lies-in-ruins.html The European dream lies in ruins], Janet Daley, UK Telegraph</ref><ref>[http://www.marketoracle.co.uk/Article27051.html A New World Currency?], Ellen Hodgson Brown</ref> as the existing co-ordinated state-based central bank architecture becomes discredited through repeated economic failure and environmental crises caused by the need for unsustainable exponential debt-driven economic "growth" within the current debt-based financial architecture.<ref>[http://www.zerohedge.com/article/guest-post-economic-abyss The Economic Abyss], Brandon Smith</ref> This centralization is anticipated to include the empowerment of the UN to increasingly intervene in the domestic political affairs of nations,<ref>[http://www.lewrockwell.com/rozeff/rozeff343.html World Government], Mike Rozeff</ref> the IMF and EU to increasingly intervene in the domestic financial affairs of member nations,<ref>[http://www.telegraph.co.uk/comment/columnists/janetdaley/8770696/The-European-dream-lies-in-ruins.html The European dream lies in ruins], Janet Daley, UK Telegraph</ref><ref>[http://www.zerohedge.com/article/greeces-ultimatum-bailout-bankers-or-loss-sovereignty Greece's Ultimatum], ZeroHedge</ref><ref>[http://globaleconomicanalysis.blogspot.com/2010/11/terms-of-enslavement-irish-citizens-say.html Terms of Enslavement], MISH</ref><ref>[http://globaleconomicanalysis.blogspot.com/2010/11/imf-ready-to-help-ireland-can-imf-help.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+MishsGlobalEconomicTrendAnalysis+%28Mish%27s+Global+Economic+Trend+Analysis%29 Can the IMF help anyone?], MISH</ref><ref>[http://www.telegraph.co.uk/finance/financialcrisis/8150137/Ireland-forced-to-take-EU-and-IMF-bail-out-package.html Ireland forced to take IMF bailout package], Telegraph</ref> and the declaration of [[martial law]] and the imposition of [[fascist]]-style restrictions on [[civil rights]]<ref>[http://www.zerohedge.com/article/guest-post-us-monetary-system-and-descent-fascism-interview-dr-edwin-vieira The U.S. Monetary System and Descent Into Fascism], Dr Edwin Vieir</ref><ref>[http://english.aljazeera.net/indepth/opinion/2011/04/201142612714539672.html Global capitalism and 21st cenury fascism], William I. Robinson</ref><ref>[http://www.lewrockwell.com/rep2/jesse-ventura-on-tsa-abusers.html Jesse Ventura on the TSA' Sexual Abusers]</ref> and [[freedom of speech]] by the political [[The Establishment|Establishment]] to physically protect it from [[anarchy]] or military [[coup]] when the [[bubble (economics)|bubble]] of debt completely bursts, through a precipitous currency crisis, debt-created [[Depression (economics)|depression]], environmental crisis or oil shortage.<ref>[http://www.marketoracle.co.uk/Article26605.html Population Reduction], Chris Kitze</ref><ref>[http://jsmineset.com/2011/02/24/in-the-news-today-791/ Collapse]</ref><ref>[http://www.lewrockwell.com/lewrockwell-show/2010/12/14/179-the-espionage-act-and-the-death-of-american-freedoms/ Death of American Freedoms], Naomi Wolf, LRC interview, Dec 14, 2010</ref><ref>[http://www.house.gov/paul/congrec/congrec2007/cr120507h.htm New security legislation threats freedoms]</ref><ref>[http://www.marketoracle.co.uk/Article26325.html Bank Credit Ends in Catastrophe], Richard Daughty, The Mogambo Guru</ref> Ultimately this is anticipated to yield either repressive world government<ref>[http://www.zerohedge.com/news/2013-01-31/guest-post-linchpin-lie-how-global-collapse-will-be-sold-masses The Linchpin Lie]</ref> or chaos (or most likely both), with a world central bank stationed in Basel, Switzerland.<ref>[http://www.zerohedge.com/news/2013-05-03/monarchs-money Monarchs of Money]</ref><ref>[http://www.youtube.com/watch?v=VMngK0t5WkY Max Keiser]</ref><ref>[http://www.marketoracle.co.uk/Article28533.html The Global Debt Crisis], Ellen Hodgson Brown</ref><ref>[http://www.marketoracle.co.uk/Article27051.html A New World Currency?], Ellen Hodgson Brown</ref><ref>[http://www.marketoracle.co.uk/Article27554.html Libya War All About Oil or Gold and Banking?], Ellen Hodgson Brown</ref><ref>[http://blog.mises.org/9321/crisis-and-leviathan/ Crisis and Leviathan], Robert Higgs</ref> During this transition period, some analysts and conspiracy theorists anticipate multiple wars to force governments into the BIS financial "net",<ref>[http://www.youtube.com/watch?v=VMngK0t5WkY Max Keiser]</ref><ref>[http://www.marketoracle.co.uk/Article28533.html The Global Debt Crisis], Ellen Hodgson Brown</ref><ref>[http://www.marketoracle.co.uk/Article27051.html A New World Currency?], Ellen Hodgson Brown</ref><ref>[http://www.marketoracle.co.uk/Article27554.html Libya Ware All About Oil or Gold and Banking?], Ellen Hodgson Brown</ref> impotent and counterproductive price controls,<ref>[http://globaleconomicanalysis.blogspot.com/2011/03/food-prices-rise-11-in-china-overall.html Chinese inflation], MISH</ref><ref>[http://www.lewrockwell.com/goyette/goyette18.1.html Too Late!], Charles Goyette</ref> repeated sell-offs of monopoly state assets in a desperate attempt to feed private domestic banks with steady, coercively acquired income to keep the value of government bonds collapsing,<ref>[http://globaleconomicanalysis.blogspot.com/2011/05/whos-bigger-socialist-president-obama.html Who's the Bigger Socialist?], MISH</ref> and then, once this attempt (to feed unsustainable compounding debt with any remaining basic infrastructure) destroys any remaining parts of the productive economy, there will be in the end coercively enforced rationing of basic essentials to ensure continued supply of food and oil to senior government officials, bankers and their associates amidst widespread general starvation and chaos,<ref>[http://www.technologyreview.com/blog/arxiv/27083/?p1=blogs Food prices and Riots]</ref><ref>[http://www.marketoracle.co.uk/Article26605.html Population Reduction], Chris Kitze</ref> as the coalescence of a corrupt banker-government coalition solidifies<ref>[http://www.zerohedge.com/news/2013-01-31/guest-post-linchpin-lie-how-global-collapse-will-be-sold-masses The Linchpin Lie]</ref><ref>[http://maxkeiser.com/2011/04/28/kr142-keiser-report-blind-cult-of-america/ Blind Cult of America]. Quote: Max Keiser: "Yes, it's beyond religious fervor. That's the point. It's become this echo chamber, cult-like 'America can't fail' which is very endemic when you see suicide cults. Remember Jim Jones. Remember him. The Kool Aid. He made the idea of drinking Kool Aid... he popularized that notion. Everyone committed suicide in Guyana. Or the Hail-Bot Comet Cult. Here you've got 300 million Americans who are worshiping this idea of 'American-style' Free Market Capitalism that doesn't exist. They support market manipulation on Wall Street and they're all gonna ''die'' as a result. Now that's less than 5% of the world's population. It is 25% of the world's garbage so the world will breathe a sigh of relief, but, as far as those living inside they don't really understand that they're being used as cult fodder." Stacy Herbert: "The equivalent of drinking the cyanide-laced Kool Aid would be purchasing a McMansion with a sub-prime mortgage. This is them committing suicide. It's the equivalent of drinking cyanide-laced Kool Aid." Max Keiser: "It's financial suicide. As we've talked about. Financialization of the economy has turned into this hybrid reality that combines political malfeasance with financial larceny and that's the combination between Obama's White House and Wall Street merging together into something even more insidious than fascism. It's a Klepto-F*@kingSh*tism. It's a... it's a Klepto-Sh*tism is the current political-financial school of thought in America today and it's not working. It's unsustainable."</ref> to eliminate potential dissent and ensure the forced elimination - by any means necessary - of any actual or potential competing [[currencies]] that could threaten the viability or legitimacy of the [[monopoly]] currency, which could include war against any country considering using any currency other than US dollars to price essential commodities such as oil <ref>[http://www.lewrockwell.com/holland/holland44.1.html Anglo-American Deception], Ron Holland</ref> and the compulsory confiscation of all privately-owned [[gold]] (gold being the ultimate reserve currency, still used by central banks as a universally accepted medium of exchange for the settlement of international debts).<ref>[http://mises.org/daily/5184/The-Crime-of-Private-Money The "Crime" of Private Money], Robert Murphy</ref><ref>[http://www.zerohedge.com/article/guest-post-thoughts-liberty-dollar-debacle Liberty Dollar], ZeroHedge.com</ref><ref>[http://blog.mises.org/14795/the-gold-clause-cases-and-constitutional-necessity/ Gold Clause Cases]</ref><ref>[http://news.goldseek.com/GoldSeek/1196605589.php America's Trade Debts Lead to a Likely Gold Confiscation]</ref><ref>[http://www.libertydollar.org/ld/legal/raid.htm FBI Raids Liberty Dollar]</ref><ref>[http://www.lewrockwell.com/rothbard/solution.html The Solution]</ref><ref>[http://prudentinvestor.blogspot.com/2007/09/us-mint-suspends-gold-coin-sales-due-to.html US Mint Suspends Gold Coin Sales]</ref><ref>[http://www.swissamerica.com/article.php?art=06-2004/200406140537f.txt Why a Gold Standard Now?]</ref><ref>[http://www.lewrockwell.com/blog/lewrw/archives/73468.html Bank of America an arm of US government policy]</ref><ref>[http://www.marketoracle.co.uk/Article26325.html Bank Credit Ends in Catastrophe], Richard Daughty, The Mogambo Guru</ref><ref>[http://www.sovereignman.com/expat/bernanke-terrorist Bernanke is the domestic terrorist], Sovereign Man</ref><ref>[http://www.marketoracle.co.uk/Article28225.html DSK Was Trying to Torpedo the Dollar], Mike Whitney</ref>

Some have speculated that the overthrow and attempted assassination of Col. Gaddafi and his family in 2011 Libyan "civil war" was triggered by Col. Gaddafi's open (and unwise) attempt to price Libya's oil in gold, which is the reaction many would expect for a country that "dared" to price an essential commodity in anything other than a Western paper currency.<ref>[http://www.youtube.com/watch?v=GuqZfaj34nc&feature=player_embedded#! Gaddafi: Gold for Oil?], RTTV</ref><ref>[http://www.youtube.com/watch?v=8lnslMWhOTw&list=SPC3F29DDAA1BABFCF&index=194 Welcome Home German Gold], Max Keiser</ref>

There have been many [[financial crisis|monetary crises]] throughout history.<ref>[http://www.zerohedge.com/news/2013-02-26/trust-me-time-different Trust Me This Time Is Different]</ref><ref>[http://www.delanion.com/main/dom.htm Fiat Money Inflation in France], Gold Money video featuring Max Keiser, James Turk and Pierre Jovanovic</ref><ref>[http://www.delanion.com/main/dom.htm Dying of Money], Jens O. Parsson</ref><ref>[http://www.delanion.com/main/dom.htm Dying of Money], Jens O. Parsson</ref><ref name="Bonner_Swan">[http://www.lewrockwell.com/bonner/bonner454.html Revolution in Egypt and Black Swans], Bill Bonner, February 15, 2011.</ref><ref>[http://news.goldseek.com/GoldSeek/1297199137.php China Inflation and Gold], Darryl Robert Schoon</ref><ref>[http://mises.org/store/Early-Speculative-Bubbles-P578.aspx Early Speculative Bubbles and Increases in the Money Supply], Doug French, Mises Institute ISBN: 978-1-933550-44-2</ref><ref>[http://dailyreckoning.com/a-word-of-advice-to-financial-authorities/ Advice to Financial Authorities], Bill Bonner</ref><ref>[http://www.marketoracle.co.uk/Article26325.html Bank Credit Ends in Catastrophe], Richard Daughty, The Mogambo Guru</ref> Some commentators have noted that our present system and the strategies attempted by governments to reflate the economy closely resemble the failed theories of John Law and the Mississippi bubble of the early 18th century.<ref>[http://www.economist.com/node/14215012 Law of easy money], ''The Economist''</ref> There are a number of standard warning signs of impending depression or hyperinflation caused by a complete breakdown of trust in any [[monetary system]].<ref>[http://mises.org/store/Product.aspx?ProductId=435 Fiat Money Inflation in France], Andrew Dickson White, Mises Institute</ref><ref>[http://www.marketoracle.co.uk/Article25313.html Asset Speculation and Capital Destruction], Jim Willie</ref><ref>[http://www.zerohedge.com/article/guest-post-economic-abyss The Economic Abyss], Brandon Smith</ref><ref>[http://lewrockwell.com/orig12/martenson8.1.1.html Argentina: A Case Study], Chris Martenson and FerFAL</ref> Just prior to the complete collapse of the [[pyramid scheme]] of public and private debt, the economic system tends to feed on itself, and in the past, where debt-created [[Depression (economics)|depression]]s or periods of [[hyperinflation]] have occurred in [[Europe]],<ref name="Bonner_Swan" /> the [[U.S.]] and [[China]], there has been a sustained spike in predatory economic behavior, as the heavily indebted central government and producers are forced to find more extreme (previously considered unethical) methods to extract any remaining wealth from increasingly desperate and impoverished [[consumers]], who are either unwilling or unable to go into further debt without forceful coercion.<ref>[http://www.zerohedge.com/article/guest-post-ethics-mortgage-loan-default The Ethics of Mortgage Loan Default], Greg Lemelson</ref><ref name="Bonner_Swan" /><ref name="http">{{cite book |last= Widdig |first= Bernd |title= Culture and Inflation in Weimar Germany |url= http://books.google.com/books/ucpress?id=kvKAATycUzIC |accessdate= 2007-12-16 |year= 2001 |publisher= University of California
Press |isbn= 0520222903 }}</ref><ref>[http://mises.org/daily/3569 John Law and the Invention of Modern Finance], Doug French (Mises.org)</ref><ref>[http://mises.org/daily/1690 The Saga of John Law and Richard Cantillon], Sean Corrigan (Mises.org)</ref> [[Long-term]] investment and sustained [[capital investment]] are almost impossible in this environment because the "measuring stick" of [[return on investment]] (the real value of [[money]]) is so uncertain at times of debt-induced [[credit crunch]], depression or hyperinflation.<ref>[http://www.marketoracle.co.uk/Article25313.html Asset Speculation and Capital Destruction], Jim Willie</ref>

As potential new [[borrower]]s and international financiers are scared away from participating in the [[pyramid scheme]] of debt and borrowing further, the [[monetary system]] seizes up, starved of the fresh injections of [[debt money]] it needs for its survival, thereby precipitating economic [[anarchy]],<ref name="Bonner_Swan" /><ref>[http://www.zerohedge.com/article/guest-post-economic-abyss The Economic Abyss], Brandon Smith</ref> widespread [[lawlessness]]<ref name="Bonner_Swan" /> and [[insolvency]] of the monetary and banking system.<ref>[http://www.youtube.com/watch?v=FPxYg6mgGpE Inflation is There], Peter Schiff</ref><ref>[http://www.oftwominds.com/blognov07/empire-debt1.html Empire of Debt]</ref><ref name="Landis_Reprieve" /><ref>[http://www.marketoracle.co.uk/Article25313.html Asset Speculation and Capital Destruction], Jim Willie</ref><ref name="Bonner_Swan" /> Some have described the moment when governments cannot borrow any more from banks to keep up the growth in debt money as the "Keynesian Endpoint" or "Keynesian Endgame" or point of "Debt Saturation" - which is the point in time when ''in extremis ''"emergency" measures by the government to kick-start the economy by increasing total gross debt have no lasting positive effect on GDP.<ref>[http://www.zerohedge.com/article/guest-post-economic-death-spiral-has-been-triggered The Economic Death Spiral], Gordon T. Long</ref><ref>[http://www.zerohedge.com/article/charting-ten-year-prelude-keynesian-endgame Keynesian Endgame], ZeroHedge</ref><ref>[http://en.wikipedia.org/wiki/Keynesian_endpoint Keynesian Endpoint], Wikipedia definition</ref><ref>[http://www.marketoracle.co.uk/Article27801.html U.S. Debt Saturation and Money Illusion], Gordon T. Long</ref> Antal E. Fekete identifies this "crisis" point as the point when the marginal increase in total gross debt has no positive marginal effect on GDP.<ref>[http://www.professorfekete.com/articles/AEFGotterdammerung.pdf Gotterdammerung], Antal E. Fekete</ref> According to Professor Fekete, once the marginal productivity of debt turns negative, a disastrous depression is inevitable.<ref>[http://www.professorfekete.com/articles/AEFGotterdammerung.pdf Gotterdammerung], Antal E. Fekete</ref>

Recent studies have indicated that debt turns toxic at between 80 and 100 percent of GDP. Beyond this, further increases in debt reduce GDP rather than stimulate it.<ref>[http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100011744/when-debt-levels-turn-cancerous/ When Debt Levels Turn Cancerous], Ambrose Evans-Pritchard</ref>

This final denouement is triggered when [[borrower]]s cannot be found to buy depreciating, already-indebted, assets, and international financiers reduce lending as they experience losses on pre-existing loans either through asset or currency [[depreciation]].<ref>[http://www.youtube.com/watch?v=FPxYg6mgGpE Inflation is There], Peter Schiff</ref> Some analysts predict that the [[monetary system]] will seize up due to a [[deflationary]] depression<ref>[http://www.zerohedge.com/article/guest-post-heres-setup-con-decade The Con of the Decade], ZeroHedge</ref> or a sustained period of [[stagflation]]ary hyperinflation resulting in a "final and total catastrophe of our fiat monetary system."<ref name="Landis_Reprieve" /><ref>[http://www.marketoracle.co.uk/Article25313.html Asset Speculation and Capital Destruction], Jim Willie</ref><ref>[http://www.youtube.com/watch?v=FPxYg6mgGpE Inflation is There], Peter Schiff</ref><ref>[http://www.marketoracle.co.uk/Article27402.html Deflationists Blind to Inflationary Storm], Jim Willie</ref><ref>[http://www.marketoracle.co.uk/Article27466.html Compounding Debt]</ref>

Examples of debt and monetary crises can often be found after failed wars, when international financiers realize the heavily indebted [[government]] they funded will not gain the resources it planned to seize as a result of the waging of aggressive war. When this pay-off does not materialize, the losing government is left with the debt of war without the ability to offset this government debt through the imposition of reparations on the defeated nation and the acquisition of the defeated state's resources, thereby boosting the victorious state's GDP and tax revenues. This sudden monetary collapse occurred to [[Germany]] after the [[First World War]] and [[Japan]] after the [[Second World War]].

Whatever the trigger, the key warning sign of any impending monetary crisis and economic [[anarchy]] is a sudden [[currency crisis]], or a sudden spike in domestic interest rates, or a sudden [[credit crunch]] or the announcement of a bank holiday.<ref>[http://mises.org/daily/6400/Lessons-from-Cyprus Lessons from Cyprus]</ref><ref name="Landis_Reprieve" /> Early warning signs that the [[private banks]] themselves are aware of an impending breakdown in the [[solvency]] of the [[financial system]] would be any combination of some or all the following: a spike in the [[oil]] price (which is an internationally accepted, inherently limited, store of value, and therefore can act as a modern form of [[hard currency]], oil sometimes being referred to as "black gold"), "backwardation" in [[gold]],<ref>[http://www.zerohedge.com/news/2013-02-22/gold-and-potential-dollar-endgame-part-3-backwardation-and-gold Gold and the Potential Dollar Endgame]</ref><ref>[http://www.minyanville.com/businessmarkets/articles/gold-spot-price-gold-prices-gold/5/10/2011/id/34441?camp=syndication&medium=portals&from=yahoo Permanent Gold Backwardation: Why a "Crack Up Boom" Is Inevitable], Keith Weiner</ref> and [[silver]]<ref>[http://www.youtube.com/watch?v=021yEhjPDa0&feature=player_embedded#at=826 $400 Ounce Silver, $8000 Ounce Gold], James Turk</ref><ref>[http://www.youtube.com/watch?v=FPxYg6mgGpE Inflation is There], Peter Schiff</ref> and sudden price spikes in other stable, non-perishable, inherently limited [[natural resources]] essential for non-discretionary industrial production;<ref>[http://www.marketoracle.co.uk/Article25313.html Asset Speculation and Capital Destruction], Jim Willie</ref> a spike in the [[futures contract]]s for vital agricultural [[commodities]]<ref>[http://www.marketwatch.com/story/fed-dictator-bernanke-needs-to-be-toppled-2011-02-15 Fed dictator Bernanke needs to be toppled], Paul B. Farrell</ref><ref>January 27, 2011 – ''Financial Times'' (Javier Blas and Chris Giles): “Governments across the developing world are stockpiling food staples in an attempt to contain panic buying, inflation and social unrest. But the hoarding is driving agricultural commodity prices even higher. The cost of wheat, the world’s most important staple, reached a fresh two-and-a-half-year high on Thursday, after countries from Algeria to Saudi Arabia announced extraordinary purchases. High food prices have been a contributing factor to the recent wave of social unrest across North Africa and the Middle East. In Algeria earlier this month, young rioters chanted ‘Bring us sugar!’ The cost of the sweetener in the wholesale market is at its highest in 30 years. Earlier this week, Algeria bought 800,000 tonnes of wheat – much more than usual – and Saudi Arabia announced plans to double the size of its wheat stockpile. Bangladesh and Indonesia joined the rush on Thursday, placing extraordinary on rice orders.”</ref> such as [[sugar]],<ref>[http://www.bloomberg.com/news/2010-12-15/portugal-tries-to-prevent-sugar-hoarding-amid-shortage-ft-says.html 2010 Portugal Sugar Crisis]</ref> [[corn]], [[wheat]], [[soybean]]s and [[rice]], as investors realize the debt-based monetary system has squeezed supplies of [[arable land]];<ref>[http://webofdebt.wordpress.com/2011/02/03/the-egyptian-tinderbox-how-banks-and-investors-are-starving-the-third-world/#more-1052 Banks and investors are starving the Third World], Ellen Hodgson Brown</ref><ref>[http://www.preparednesspro.com/blog/food-shortage-series-part-1/ Food Shortage Series],Kellene Bishop</ref><ref>[http://www.smh.com.au/environment/world-hungers-for-more-food-20110402-1csbh.html World hungers for more food], Sydney Morning Herald,</ref> a sudden flight of money ''to'' [[Treasury bills]] and/or a sudden spike in the [[interest rate]] differential between short-term [[Treasury bills]] and asset-backed corporate paper (or a sudden spike in the [[LIBOR]] rate in [[London]])<ref name="Landis_Reprieve" /><ref>[http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/12/03/cnrates103.xml&CMP=ILC-mostviewedbox Pleas for rate cut as interbank loans dive]</ref> - and then, in the very late stages of a credit crisis, a sudden and disorderly flight of money ''away from'' government bonds and a "shock" or "panic" collapse in government bond prices, as banks perceive that some governments will ultimately find it ''impossible'' to pay interest on their debt from coercively acquired taxes.<ref>[http://www.youtube.com/watch?v=SgNLTb58K_Y S&P Rating on US Sovereign Debt not Low Enough], Peter Schiff</ref><ref>[http://www.telegraph.co.uk/finance/economics/8190059/Global-bond-rout-deepens-on-US-fiscal-worries.html Global bond rout], Ambrose Evans-Pritchard, UK Telegraph</ref><ref>[http://www.prudentbear.com/index.php/thebearslairview?art_id=10480 When Will The U.S. Become Greece?], Michael Hutchinson</ref>

Shortly thereafter, some [[monetary reform]]ers predict that there would be desperate, but ultimately futile [[central bank]] intervention involving massive, repeated bouts of "quantitative easing",<ref>[http://www.zerohedge.com/article/did-fed-its-stealthy-synthetic-bet-keep-yields-low-become-next-aig Doubling Down], ZeroHedge</ref> then a [[currency crisis]],<ref>[http://www.zerohedge.com/article/jim-grant-inflation-there-will-be-lot-it-suddenly-because-our-interest-rate-structure-beyond Jim Grant on Inflation], ZeroHedge</ref> then a panic run on a number of marginal, [[insolvent]] [[banks]] and [[hedge funds]] as desperate wealthy investors try to get [[cash]] out before the [[pyramid scheme]]<ref>[http://www.youtube.com/watch?v=FPxYg6mgGpE Inflation is There], Peter Schiff</ref> collapses to invest in inherently limited, non-perishable, in-demand commodities such as [[oil]] and [[gold]]<ref>[http://www.professorfekete.com/articles/AEFAmericanBasesGermanyGoldBasis.pdf The Gold Basis], Antal E Fekete]</ref><ref>[http://www.zerohedge.com/article/golden-tipping-point-university-texas-takes-delivery-1-billion-physical-gold A Golden Tipping Point], ZeroHedge</ref><ref>[http://www.youtube.com/watch?v=FPxYg6mgGpE Inflation is There], Peter Schiff</ref><ref>[http://www.marketoracle.co.uk/Article25313.html Asset Speculation and Capital Destruction], Jim Willie</ref> (and undeveloped agricultural and industrial [[land]] in areas of the world with strong [[economic growth]]),<ref>[http://www.nytimes.com/2011/03/04/business/04farms.html?_r=1&hp Price of Farmland] NYTimes</ref> followed by a [[recession]] or [[depression]] in the broader heavily indebted economy as [[money supply|credit]] contracts but base money continues to rise exponentially.<ref>[http://www.marketoracle.co.uk/Article27172.html Why QE has NOT brought back inflation], EWI</ref><ref name="Landis_Reprieve" /><ref>[http://www.marketoracle.co.uk/Article25313.html Asset Speculation and Capital Destruction], Jim Willie</ref><ref>[http://www.newyorkfed.org/research/staff_reports/sr291.pdf Hedge Funds, Financial Intermediation and Systemic Risk]</ref><ref>[http://jsmineset.com/2011/02/24/in-the-news-today-791/ Collapse]</ref><ref>[http://www.marketoracle.co.uk/Article27596.html US Accelerating Inflation Mega-Trend], Nadeem Walayat</ref>

Historically, during periods of monetary disorder, a predator-prey mentality generally grips society, with parasitic or predatory activity being witnessed, eating away at the last vestiges of the middle class.<ref>[http://www.goldonomic.com/When%20Money%20Dies.pdf When Money Dies], Adam Fergusson</ref> In such circumstances the following activities continue to be profitable and proliferate during monetary disorder: international banking and financial services to the wealthy elite, to assist in secreting their assets outside the jurisdiction; drug trafficking and distribution to ease the psychological stress on those slipping down the social ladder into poverty and homelessness; security and protection services to the wealthy; entertainment services to the wealthy, including gambling, prostitution (male, female and child) and "exclusive" nightclubs and bars servicing the wealthy; luxury imported goods and services; military and defense contracting and procurement (as a form of high-level security services for elite government employees), propaganda and media services defending and glorifying and legitimizing the State; and all forms of coercive government activity generally (as the tendency towards fascist-style controls feeds on itself in a positive feedback loop around a triangle of increasing government employee numbers scared away from the shrinking private sector, a banking industry supporting government jobs and big business and defense contracting supporting and feeding both).<ref>[http://www.zerohedge.com/news/2013-05-22/greek-prostitution-soars-150-youth-unempoyment-hits-75-some-areas Greek Prostitution Soars By 150%]</ref><ref>[http://www.goldonomic.com/When%20Money%20Dies.pdf When Money Dies], Adam Fergusson</ref><ref>[http://books.google.com.au/books?id=kvKAATycUzIC&pg=PA197&lpg=PA197&dq=prostitution+modernism+weimar+germany+hyperinflation&source=bl&ots=DaJiHnllDu&sig=Acfme5660DBUC6Xw5XLdoke5IE4&hl=en&ei=fOB1Tor1BsXRmAWSoYn0DA&sa=X&oi=book_result&ct=result&resnum=5&ved=0CD4Q6AEwBDgK#v=onepage&q&f=false Culture and Inflation in Weimar Germany], Bernd Widdig</ref><ref>[http://www.businessinsider.com/finance-guy-in-london-explains-how-to-order-cocaine-from-a-restaurant-2011-9#ixzz1Y2MQUyzJ London Banker explains how to order cocaine from London restaurant]</ref><ref>[http://www.alternet.org/story/152446/inside_the_trillion-dollar_underground_economy_keeping_many_americans_%28barely%29_afloat_in_desperate_times?page=entire Inside the Underground Economy]</ref>

It should be noted that in 2011 banks started paying police directly, presumably to ensure protection from the public should widespread protests commence against their alleged [[embezzlement]] activities.<ref>[http://lewrockwell.com/wenzel/wenzel132.html Banksters Running Scared]</ref>

In 2010 Ireland and Greece experienced similar financial crises along the lines described above and many financial commentators and politicians expect more countries to go through the same debt crisis.<ref>[http://globaleconomicanalysis.blogspot.com/2010/12/video-fire-bombs-stones-fly-in-greek.html Greek protests]</ref><ref>[http://www.youtube.com/watch?v=2gm9q8uabTs "Who the Hell do you think you people are?"], Nigel Farage, UKIP leader</ref><ref>[http://www.marketoracle.co.uk/Article25313.html Asset Speculation and Capital Destruction], Jim Willie</ref> In 2011, Tunisia experienced a financial and political crisis that was almost identical to those already experienced on the poorer European periphery, except that in this case the pre-existing political establishment quickly fled the country in fear for their safety - with some allegations that the wife of the deposed leader, Leila Trabelsi, ordered the country's central bank to transfer 1.5 tonnes of [[gold]] to Zine El Abidine Ben Ali and his family.<ref>[http://www.marketoracle.co.uk/Article25636.html We are all Tunisians], Yvonne Ridley</ref><ref>[http://www.heraldsun.com.au/news/breaking-news/tunisia-missing-15-tonnes-of-gold/story-e6frf7jx-1225992107457 Tunisia missing 1.5 tonnes of gold], Herald Sun</ref> The Egyptian uprising resulted in Hosni Mubarek fleeing after desperate attempts were made by him and his associates to preserve his family's wealth and power.<ref>[http://news.yahoo.com/s/ap/20110212/ap_on_re_mi_ea/ml_egypt_mubarak_s_final_hours Mubarak's final hours], Associated Press</ref> Several newspapers have reported that, once again, appropriating the nation's gold reserves was a major priority for the fallen leader.<ref>[http://www.smh.com.au/world/mubaraks-lastminute-rush-to-hide-his-billions-20110213-1as1c.html Mubarak's Rush to Hide Billions], SMH</ref> Following the overthrow of the ruling elites in Tunisia and Egypt, other North African countries have experienced similar uprisings - all attributable to higher food prices, according to some noted commentators,<ref>[http://www.telegraph.co.uk/finance/economics/8492078/How-the-Fed-triggered-the-Arab-Spring-uprisings-in-two-easy-graphs.html How the Fed triggered the Arab Spring uprisings], Andrew Lilico</ref> who have accused Fed Chairman Ben Bernanke of literally having "blood on his hands" due to the encouragement of food price inflation via sustained inflationary loose-monetary policies.<ref>[http://globaleconomicanalysis.blogspot.com/2011/01/blood-on-bernankes-hands-riots-in-egypt.html Blood on Bernanke's Hands], MISH</ref><ref>[http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2011/4/6_Marc_Faber_-_Mr._Bernanke_is_a_Murderer_of_the_Middle_Class.html Marc Faber calls Mr Bernanke a Murderer of the Middle Class], King World News</ref><ref>[http://www.youtube.com/watch?v=V3NdUU1wWa4&feature=player_embedded#at=89 Max Keiser - Bernanke is a Murderer]</ref><ref>[http://dailyreckoning.com/lessons-from-egypt-for-the-american-people/ Lessons from Egypt], Charles Kadlec</ref><ref>[http://www.marketwatch.com/story/fed-dictator-bernanke-needs-to-be-toppled-2011-02-15 Fed dictator Bernanke needs to be toppled], Paul B. Farrell</ref><ref>[http://mises.org/daily/5050/QE2-Fuels-a-Global-Fury QE2 Fuels a Global Fury], Mark Thornton</ref><ref>[http://www.zerohedge.com/article/bernanke-blame-rising-global-revolutionary-wave?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+zerohedge%2Ffeed+%28zero+hedge+-+on+a+long+enough+timeline%2C+the+survival+rate+for+everyone+drops+to+zero%29 Is Bernanke To Blame?], Tyler Durden, ZeroHedge</ref> The central banker has denied that his inflationary loose-monetary policies have contributed to food inflation and Chicago Fed President Charles Evans has called for ''even more'' quantitative easing and inflation as a way out of the on-going crisis, despite previous attempts having failed to stimulate the economy.<ref>[http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/8302111/Fed-chief-Ben-Bernanke-denies-US-policy-behind-record-global-food-prices.html Ben Bernanke Denies US Policy Behind Food Price Inflation], UK Telegraph, 3 February 2011</ref><ref>[http://www.zerohedge.com/news/evans-goes-full-qetard-tells-hilsenrath-fed-needs-do-much-more-easing Chuckie Evans Goes Full QEtard]</ref> Implicit in Mr Bernanke's and Mr Evan's argument is the assumption that the central bank can create "good" inflation in some markets and avoid "bad" inflation in others. This alleged central bank power to direct good inflation and abate bad inflation is derided by a number of commentators.<ref>[http://www.youtube.com/watch?v=V3NdUU1wWa4&feature=player_embedded#at=89 Max Keiser - Bernanke is a Murderer]</ref><ref>[http://globaleconomicanalysis.blogspot.com/2011/01/blood-on-bernankes-hands-riots-in-egypt.html Blood on Bernanke's Hands], MISH</ref><ref>[http://dailyreckoning.com/lessons-from-egypt-for-the-american-people/ Lessons from Egypt], Charles Kadlec</ref><ref>[http://www.marketwatch.com/story/fed-dictator-bernanke-needs-to-be-toppled-2011-02-15 Fed dictator Bernanke needs to be toppled], Paul B. Farrell</ref><ref>[http://www.zerohedge.com/article/bernanke-blame-rising-global-revolutionary-wave?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+zerohedge%2Ffeed+%28zero+hedge+-+on+a+long+enough+timeline%2C+the+survival+rate+for+everyone+drops+to+zero%29 Is Bernanke To Blame?], Tyler Durden, ZeroHedge</ref><ref>[http://www.marketoracle.co.uk/Article28587.html QE2 Unmitigated Failure], James Quinn</ref><ref>[http://www.marketoracle.co.uk/Article28998.html The Great Misdiagnosis], Jim Willie CB</ref>

Noted British ''Telegraph'' commentator Ambrose Evans-Pritchard has called these the first Malthusian "Food Revolutions" of the modern era, as "agflation" causes political instability on the periphery of major economies worldwide - particularly those countries that have already denuded their agricultural base and have to import grain and other foods to survive.<ref>[http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/8291470/Egypt-and-Tunisia-usher-in-the-new-era-of-global-food-revolutions.html A New Era of Food Revolutions], Ambrose Evans-Pritchard</ref><ref>[http://jsmineset.com/2011/02/24/in-the-news-today-791/ Collapse]</ref>

It is also reported that very complex, delicate negotiations are taking place between debtor and creditor nations to swap government bonds with gold at prices far in excess of the declared "market price" of gold.<ref>[http://www.marketoracle.co.uk/Article25878.html China Buys European Gold], Jim Willie</ref> These so-called "off-market" deals - and possible diversions of government-owned gold to corrupt bankers and political leaders - are signs the Keynesian Endpoint has arrived and the politicians and bankers recognize they have lost control of the economic system and must focus on saving themselves.<ref>[http://lewrockwell.com/wenzel/wenzel113.html Fort Knox Gold], Robert Wenzel</ref><ref>[http://www.marketoracle.co.uk/Article25878.html China Buys European Gold], Jim Willie</ref> Max Keiser reports that it appears powerful nations will negotiate repatriation of their gold and smaller nations will either have to accept their gold is lost or face war if they attempt to repatriate their own gold home.<ref>[http://www.youtube.com/watch?v=8lnslMWhOTw&list=SPC3F29DDAA1BABFCF&index=194 Welcome Home German Gold], Max Keiser</ref> Germany and other countries have started to slowly repatriate their gold in anticipation that gold may not be available at any price in future.<ref>[http://www.lewrockwell.com/spl5/fed-short-germanys-gold.html What if the Fed is Short Germany's Gold?]</ref><ref>[http://lewrockwell.com/thomas-jeff/thomas-jeff16.1.html The Disappearing Gold]</ref>

Finally, it should be noted that, with the collapse of Tsarist Russia, the establishment of the fifth and final central bank of the United States, the destruction of the fiat-issuing fascist regimes in Italy, Germany and Japan post-WWII, and the collapse of communism in the 1990s, there no longer exists any major economy where the banking system is fully government-owned or has any strictly enforceable social responsibilities beyond pure profit motive. All major world economies have now adopted essentially the same monetary system, with profit-driven private banks (government-licensed institutions legally permitted to engage in unlimited credit creation) able to pocket profits during upswings and socialize losses during downswings by use of central bank asset swaps. If critics are correct that all such systems are doomed to severe boom-bust cycles because of excessive expansion of speculative credit and endemic [[moral hazard]], it is to be expected that all major economies will also experience essentially the same kind of environmental and food crises, and even allegedly "strong" economies such as China will experience severe economic downturns at some stage.<ref>[http://mises.org/daily/5070/Bust-Looms-As-China-Booms Bust Looms], Markus Bergstrom</ref><ref>[http://globaleconomicanalysis.blogspot.com/2011/03/bloodstained-property-map-and-trampled.html Bloodstained Property Map], MISH</ref> However, equally, if critics are correct that fractional reserve banking, excessive credit expansion and artificially low interest rates are at the root of all financial crises, then higher reserve ratios and capital requirements for domestic banks (or the existence of heavily controlled nationalized banks) should reduce the severity of economic crises in those economies with higher reserve requirements for their own banks.<ref>[http://www.bloomberg.com/news/2011-02-18/china-increases-banks-reserve-ratio-for-second-time-to-curb-property-boom.html China increases bank reserves to curb inflation], Bloomberg</ref><ref>[http://video.ft.com/ Lex's John Authers and Richard Stovin-Bradford discuss how to regulate banks better and how to handle those that are just too big to fail]</ref>

==Potential solutions==
Many consider it too late to reform the financial system.<ref>[http://www.zerohedge.com/news/2013-05-25/bill-black-our-system-so-flawed-fraud-mathematically-guaranteed Fraud is Guaranteed], Bill Black</ref><ref>[http://lewrockwell.com/stockman/stockman19.1.html A Review of The Great Deformation]</ref><ref>[http://matterhornassetmanagement.com/2013/03/18/get-your-assets-out-of-the-banks-now/ Get Your Assets Out of the Banks - NOW], Egon von Greyerz</ref><ref>[http://news.goldseek.com/LewRockwell/1306767600.php Is Greece the Future of America?], Mike Rozeff</ref><ref>[http://www.marketoracle.co.uk/Article27739.html Financial Slaughterhouse], Ashvin_Pandurangi</ref><ref>[http://www.marketoracle.co.uk/Article27764.html The Big QE2 Shakedown], Mike Whitney</ref><ref>[http://www.youtube.com/watch?v=-GmBoJ7qHYg&feature=player_embedded Simon Johnson INET]</ref><ref>[http://www.guardian.co.uk/business/2010/sep/14/banking-reforms-too-little-too-late Too Little Too Late], UK Guardian, 14 Sept 2010</ref><ref>[http://www.marketoracle.co.uk/Article27583.html Fed Reckoning Day Realities for Investor Pains and Gains], Deepcaster LLC</ref><ref>[http://maxkeiser.com/2013/02/02/kr401-keiser-report-fake-it-til-you-make-it-economy/ Fake It Till You Make It]</ref><ref>[http://www.marketoracle.co.uk/Article39037.html Fiat Currency Witches Brew], Ty Andros</ref> There is now so much debt in the system that the reduction in money supply growth necessary to curb [[malinvestment]] and financial bubbles would only result in financial crises and mass bankruptcies and, ultimately, business assets being transferred to the banking system. This is obvious when one observes that with no debt there is no money. With a slowing economy and reduction in money supply all assets subject to debt would inevitably be flushed through the banking system as a mathematical necessity.<ref>[http://www.moneyasdebt.net/ Money as Debt]</ref> Therefore virtually all assets will ultimately end up under the control or ownership the banking system if the present system is allowed to continue, as slowing money supply growth is inevitable with slowing population and economic growth. This is not true in a true free market monetary system<ref>[http://lewrockwell.com/woods/woods225.html Greenbackers Are Nuts]</ref> but is true of our current government manipulated debt-based system.<ref>[http://www.moneyasdebt.net/ Money as Debt]</ref>

When debt levels are unsustainable there are only a limited number of possible scenarios, and as each country reaches its debt limits each country will need to choose between these alternatives, as Iceland, Ireland, Cyprus, Greece and many other countries have already experienced. The debt is monetized, the debt is forgiven by the creditor, the debt is repudiated by the debtor and defaulted upon, the debt is postponed by temporary suspension of repayments, or the debtor finds unexpected or new ways to pay back the debt, which may include theft or confiscation from others.

The "Icelandic Solution" involved repudiation.<ref>[http://www.zerohedge.com/node/475643 The Secret Sauce of Iceland's Success Story: Debt Liquidation?]</ref> Private banks were allowed to fail and social security measures for the poor and indebted were increased. However this option is virtually impossible in other larger, less homogeneous countries given the power of the financial services sector over government in most other countries.<ref>[http://www.zerohedge.com/news/2013-01-26/only-3-minutes-worth-listening-davos Interview with Iceland's President Olafur Ragnar Grimson]</ref> It should be noted that all IMF member countries have a central bank at the heart of their financial system.<ref>[http://www.zerohedge.com/news/2013-09-16/25-fast-facts-about-federal-reserve Fast Facts About the Federal Reserve]</ref> The UK went so far as to trigger anti-terrorism legislation against Icelandic banks in a bid to pressure Iceland to pay out claims against its private banks.<ref>[http://reason.com/archives/2012/09/07/iceland-provides-a-blueprint-for-survivi Iceland Shows Other Europeans How to Survive Bankruptcy], ''Reason''</ref>

The simplest and cleanest solution for any debt-fuelled crisis is simply to [[default]] and not attempt to pay back the loans - particularly if the debt has been created unethically or fraudulently.<ref>[http://mises.org/daily/6369/The-Ethics-of-Repudiation The Ethics of Repudiation]</ref><ref>[http://mises.org/daily/5476/ There Is Life After Default], Peter Klein</ref><ref>[http://www.oftwominds.com/blogsept11/Zeus-debt-forgiveness-9-11.html Endgame], Zeus Yiamouyiannis, Ph.D.</ref><ref>[http://globaleconomicanalysis.blogspot.com/2011/02/massive-rout-in-irish-elections.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+MishsGlobalEconomicTrendAnalysis+%28Mish%27s+Global+Economic+Trend+Analysis%29 Default Best Option for Ireland], MISH</ref><ref>[http://mises.org/daily/5449/Defaulting-on-the-Feds-Bonds Defaulting on the Fed's Bonds], Robert Murphy</ref> If, as Paul Krugman and other Keynesians have argued<ref>[http://lewrockwell.com/anderson/anderson330.html Do We Really 'Owe It to Ourselves]</ref> "we owe it to ourselves", then there should be no problem repudiating that debt as it would merely involve an accounting adjustment.<ref>[http://bastiat.mises.org/2013/02/we-only-repudiate-it-to-ourselves/ We Only Repudiate It to Ourselves]</ref> This was the solution chosen by Iceland, even in circumstances which involved powerful international creditors. Despite enormous pressure from the UK government to try to force the Icelandic government to bail out its banks, it chose not to do so and allowed the private banks to default.<ref>[http://www.dailymail.co.uk/news/article-1080233/Icelanders-hit-Brown-freezing-banks-assets-We-terrorists-campaign.html Icelanders hit back at Brown]</ref> The Greek government also partially defaulted on its debts in 2012.<ref>[http://www.bbc.co.uk/news/business-17341381 Greek Default]</ref> David Graeber, author of ''Debt: The First 5000 Years'' has stated a global debt Jubilee is inevitable.<ref>[http://www.youtube.com/watch?v=SxZtfi2pYNo&list=SPPszygYHA9K2ZtV_1KphSugBB7iZqbFyz&index=6 Max Keiser Interview with David Graeber]</ref> However, particularly where government debt default is involved, bankers generally do everything to avoid this "inevitable" outcome because it (a) reduces the value of their asset (debt-based government bonds) (b) reduces or even destroys their income stream (interest on bonds) and therefore may affect their retained earnings in future (and their credit rating and compliance with Basel III rules on Tier 1 capital) (c) can result in a systemic crisis as many banks will be using that government debt to satisfy their liquidity requirements and reduce counterparty risk - even more so under Basel III (which requires a minimum proportion of "liquid" assets to be held by the banks - and those "assets" mainly consist of government bonds) and (d) signals to other countries that it is possible to escape debt without consequence and so potentially reduces the value of government debt in surrounding countries.<ref>[http://globaleconomicanalysis.blogspot.com/2011/05/trichet-goes-ballistic-walks-out-of.html Trichet Goes Ballistic], MISH</ref> Self-interested bankers are therefore often desperate to avoid government debt default, and generally much prefer an economy to be strangled by debt rather than be freed of it.<ref>[http://globaleconomicanalysis.blogspot.com/2011/05/trichet-goes-ballistic-walks-out-of.html Trichet Goes Ballistic], MISH</ref>

Confiscation or theft is often the desperate debtor's only option, if the creditors are so powerful the debtor cannot default. The sudden confiscation of part of "insured" bank depositors' savings in Cyprus is an extreme example of the last option and is the international bankers' and creditor governments' preferred "solution" as it means their debts get repaid, however unjustly.<ref>[http://www.reuters.com/article/2013/03/17/us-eurozone-cyprus-risk-idUSBRE92G0BG20130317 Cyprus bank levy]</ref><ref>[http://www.marketoracle.co.uk/Article39536.html Cyprus Haircut]</ref><ref>[http://www.zerohedge.com/news/2013-03-22/ecb-set-fair-cypriot-standard-living-capital-controls Capital Controls in Cyprus]</ref>

As an example of the consequences of the two alternatives, Iceland did not try to save its private bankers but instead permitted them to default on private bond payments.<ref>[http://www.zerohedge.com/news/2013-01-26/only-3-minutes-worth-listening-davos Interview with Iceland's President Olafur Ragnar Grimson]</ref> Ireland on the other hand guaranteed private bank debt and in doing so subjected the taxpayers of that country to decades of payments for debts that were not incurred on their behalf or for their benefit. Many commentators have observed that in 2010 [[Iceland]] recovered much faster than other countries such as [[Ireland]].<ref>[http://www.smh.com.au/business/iceland-bounces-back-as-pain-leads-to-gain-20101208-18pvm.html Iceland Bounces Back]</ref><ref>[http://www.vanityfair.com/business/features/2011/03/michael-lewis-ireland-201103?printable=true When Irish Eyes Are Crying], Michael Lewis</ref> In his extensive analysis of the aftermath of the banking panic in Ireland, Michael Lewis wrote of his puzzlement that the timid Irish government thought it was beyond the bounds of acceptable political discourse to consider default on privately issued Irish bank bonds, when Iceland successfully defaulted and only after this did they nationalize their banking system.<ref>[http://www.vanityfair.com/business/features/2011/03/michael-lewis-ireland-201103?printable=true When Irish Eyes Are Crying], Michael Lewis</ref> Commentators still dispute the relative costs and benefits of the policies implemented in Iceland and Ireland. The inflation rate has remained higher but unemployment rate remained substantially lower in Iceland compared to Ireland.<ref>[http://mises.org/daily/6575/Inflation-Has-Not-Cured-Icelands-Economic-Woes Inflation and Iceland]</ref><ref>[http://www.marketoracle.co.uk/Article42958.html Bank Guarantee Bankrupted Ireland]</ref>

In the absence of outright default, some governments simply delay addressing the issues of debt and default, with the central bank buying government bonds and manipulating the stockmarket and other asset and commodity markets to keep solvency in the banking system and government alive.<ref>[http://lewrockwell.com/barnett/barnett39.1.html Are the Federal Reserve and Its Primary Dealer Banks Manipulating the Stockmarket?]</ref><ref>[http://www.gold-eagle.com/editorials_12/lundeen061712.html Market Manipulation]</ref> Time may allow re-inflation of the markets through the gradual injection of new [[debt money]] into the system through new borrowings. It is a rare "[[black swan]]" event for a cluster of private businesses or banks to default at the same time and governments often hope that this will not happen again once it has happened already. However, if the crisis is one of national solvency, waiting passively for recovery may only delay - and exacerbate - the final catastrophe as the debt-based monetary system pushes all businesses slowly towards the next crisis by confusing and misleading market participants with false price signals, particularly as they relate to interest rates. Once the next crisis hits because of even more confused price signals due to government interference in the market for money, time is something panicked financiers and investors are least likely to want to give up when the threat is never getting their [[money]] out of the imploding investment [[bubble]]. In extreme cases [[bank]]s could set up "independent" corporate investment vehicles to buy the assets associated with the [[bad debt]],<ref>[http://www.dealbreaker.com/2007/10/citigroup_looks_to_lend_money.php Citigroup looks to lend money]</ref> thereby allowing [[borrower]]s to liquidate their investments and allow time for the markets to re-inflate. Alternatively, these "sour" loans, that have gone bad through too much debt overwhelming the markets, could be dumped or "hidden" on the central bank's balance sheet, and swapped for more secure government debt (financed through compulsorily acquired taxes, which are immune from the risk of private bankruptcy). However the holding costs involved in these measures would be extremely high and would not guarantee that the losses could be averted if no new gullible investors could be found to offload these distressed assets.<ref>[http://www.youtube.com/watch?v=n8w6Nx2rfiE A Wikileaks for the Fed?]</ref> More fundamentally, these short-term "parachutes" used after bubbles burst do not save ordinary borrowers from [[foreclosure]] and [[bankruptcy]], nor do they address the pernicious long-term dysfunctional aspects of [[fractional reserve banking]] described above. These problems are temporarily averted, only to be dealt with yet again by the next generation of indebted governments and peoples.<ref>[http://www.informationclearinghouse.info/article18431.htm The Era of Global Financial Instability, by Mike Whitney]</ref><ref>[http://www.youtube.com/watch?v=n8w6Nx2rfiE A Wikileaks for the Fed?]</ref> Simply deferring the crisis and repeatedly bailing out the banks may simply entrench misallocation of resources within the financial and governmental sectors, starving private businesses of the savings needed to invest and produce.<ref>[http://www.zerohedge.com/news/2013-01-26/only-3-minutes-worth-listening-davos Interview with Iceland's President Olafur Ragnar Grimson]</ref>

The preferred long-term free market solution (outright default and a return to free market money and the abolition of legal tender and central banks) is extremely unlikely.<ref>[http://seekingalpha.com/article/273466-4-reasons-the-u-s-will-never-return-to-a-gold-or-silver-standard 4 Reasons the US Will Never Return to a Gold or Silver Standard]</ref> In addition, given that bankers and central banks "stole" most of the people's gold, with mass confiscations dating back to the 1930s in the US<ref>[http://www.gold-eagle.com/editorials_08/nielson031411.html The Great Gold Bait-And-Switch] Jeff Nielson</ref> and earlier in Europe,<ref>[http://www.lewrockwell.com/north/north107.html Buyers of Gold], Gary North</ref> an immediate and uncompensated<ref>[http://theeconomiccollapseblog.com/archives/10-things-that-would-be-different-if-the-federal-reserve-had-never-been-created 10 Things That Would Be Different]. Note: "uncompensated" in this context means "without allowing widespread debt default with minimal punishment" or "without the issuance of debt-free money to the general populace prior to a return to the gold standard"</ref> return to the gold standard now would simply further enrich bankers and impoverish workers through crushing deflation, as the value of the assets the middle class had previously saved in (housing and mutual funds) collapsed and gold (the "elite banker's money") suddenly soared in value,<ref>[http://www.zerohedge.com/news/2013-02-26/central-banks-cannot-create-wealth-only-liquidity Central Banks Cannot Create Wealth]</ref> allowing bankers yet another generation of largesse from past theft. It should be noted that one of the principal financial assets of both the IMF and the US central bank is confiscated gold (the other being government bonds).<ref>[http://www.xat.org/xat/worldbank.html The History of Money]</ref> Less than 1% of all pension fund assets held by the general public are currently allocated to physical precious metals and many mutual funds have mandates effectively prohibiting them from holding physical precious metals.<ref>[http://sgtreport.com/2011/07/gold-silver-and-pension-funds-portfolio-diversification-myths/ Gold, Silver and Pension Funds]</ref> If the gold price were to soar, the very institutions most responsible for financial disorder would be those most likely to benefit from the chaos, having already positioned themselves to benefit from any price explosion in gold.

Given that both the Icelandic and radical free market solutions are effectively impossible to implement to any significant extent, some analysts of the current debt-based monetary system consider that, after decades of excess debt and fiat money, the current capital structure is so distorted and malinvested, the food supply so industrialized and vulnerable to shocks, and the environment generally so polluted from government-protected mining and mass industrialization that there is no hope for the vast majority of the middle class and indeed the mass of humanity in the coming decades as a combination of periodic confiscation and selective debt monetization destroys any stability in the world economy.<ref name="death"/>

Getting back to a market-based banking system would require, at minimum: (1) abolition of all deposit insurance; (2) eliminating the doctrine of "Too Big to Fail" by prohibiting the central bank from buying any assets from insolvent banks; and (3) allowing the market to set interest rates by removing this price fixing power from the central bank and allowing the real inter-bank market to set interest rates.<ref>[http://bastiat.mises.org/2012/06/misesians-in-mordor-the-video/ Misesians in Mordor]</ref> However, such changes to the global monetary system would likely trigger immediate bank runs on the weakest banking institutions and (most likely) a systemic crisis, resulting in a sudden deep depression in the short term and a period of minimal or no capital investment in the medium term as access to lending dried up from suddenly illiquid financial institutions. Although in the minds of many Austrians, the resulting system would be greatly preferable to the current dysfunctional and unsustainable system, the transition period would likely be so traumatic that no democratic government (or no government at all) would likely countenance such deregulation, nor would they likely be allowed to by the banks themselves.

Government and banking have become so intertwined there is virtually no difference between them, as banks bail out governments who in turn bail out banks in Ponzi scheme fashion.<ref>[http://www.guardian.co.uk/commentisfree/2012/mar/22/greece-european-banks-eurozone European banks saving Greece or themselves?]</ref>

Coercive, rule-bound government, by its very nature, can only perpetuate itself if it constantly maintains a monopoly of force and is widely respected as the final arbiter of disputes between any two parties within its jurisdiction.<ref>[http://www.dailypaul.com/140907/hans-hoppe-on-why-he-thinks-limited-government-is-impossible Hans Hermann Hoppe on why limited government is impossible]</ref> Governments do not obtain their revenue through donations or voluntary payments but rather either tax the populace or print fiat money to spend on projects the government deems worthwhile. There is therefore an inherently dangerous power in government spending. Good government exists to provide public goods, regulate externalities and protect and enforce property rights.<ref>[http://blog.mises.org/6546/james-wilson-on-the-purpose-of-government-and-the-constitution/ James Wilson on the purpose of government], James Galles</ref> However, if government force is used not for public purposes but to protect and enhance the power of a tiny political and financial elite, parasitic thieving forces can take over monopoly government and destruction of the economy can occur without the ability of the people to revolt or defend themselves against the depredations of government force.<ref>[http://www.lewrockwell.com/orig11/wile13.1.html One World Government], Hans Hermann Hoppe</ref><ref>[http://www.youtube.com/watch?v=DNcDu0z9UfQ Matt Tiabbi Interview on UBS Scandal]</ref> Destructive policies can therefore continue for longer than the survival of the economy itself, especially if people have been lulled into complacency by a long history of relatively benign government whilst parasitic forces slowly take over power from behind the scenes.<ref>[http://www.lewrockwell.com/orig11/wile13.1.html One World Government], Hans Hermann Hoppe</ref> Some consider that modern democracy has been subverted and that the two-party choices being presented today are a charade, with little real difference between duopoly political parties, which are just shams to cover the slow but inexorable takeover of the levers of power by the financial "elite", who do not respect nor care about the will of the people, who they consider too stupid or powerless to be treated seriously.<ref>[http://www.youtube.com/watch?v=DNcDu0z9UfQ Matt Tiabbi Interview on UBS Scandal]</ref><ref>[http://globaleconomicanalysis.blogspot.com/2011/06/vote-for-whoever-you-want-bailout.html Vote for Whoever You Want], MISH</ref><ref>[http://lewrockwell.com/wile/wile36.1.html Stop Clinging to False Hope], Anthony Wile</ref><ref>[http://www.marketoracle.co.uk/Article28949.html United States of Denial], James West</ref> Since the mid-1990s and even earlier it has been argued by many commentators that the gold default of August 15, 1971 would inevitably lead to economic disaster due to the distorting and parasitic effects unlimited fiat money and credit creation would have on the productive private economy.<ref>[http://dailyreckoning.com/armageddon-can-wait/ Armageddon Can Wait], Bill Bonner</ref><ref>[http://www.nytimes.com/2011/08/01/business/deal-may-avert-default-but-some-ask-is-that-good.html?pagewanted=1&_r=1&hpw Deal May Avert Default, but Some Ask 'Is That Good?']</ref><ref name="Landis_Reprieve" /> The relentless exponential growth in retirement and welfare benefits will now be enough to bankrupt many Western governments (including the United States).<ref name="Landis_Reprieve" /><ref>[http://www.amazon.com/Boomergeddon-Deficits-Government-Devastate-Retirement/dp/1892538539/ref=sr_1_1?ie=UTF8&qid=1305008253&sr=8-1 Boomergeddon], James A. Bacon Jr</ref> No one in power today appears willing to tackle either the corrupt banking industry or government largesse.<ref>[http://www.youtube.com/watch?v=DNcDu0z9UfQ Matt Tiabbi Interview on UBS Scandal]</ref><ref>[http://globaleconomicanalysis.blogspot.com/2011/06/vote-for-whoever-you-want-bailout.html Vote for Whoever You Want], MISH</ref><ref>[http://www.prudentbear.com/index.php/thebearslairview?art_id=10538 Sayonara, Washington], Martin Hutchinson</ref> Too many in power have a vested interest in the continuation of the system of spiraling inflation and debt to stop it, even if it could be stopped.<ref>[http://www.youtube.com/watch?v=DNcDu0z9UfQ Matt Tiabbi Interview on UBS Scandal]</ref><ref>[http://www.zerohedge.com/article/guest-post-global-economy-burns-while-its-leaders-fiddle Global Economy Burns, While Its Leaders Fiddle], Nomi Prins, ZeroHedge</ref> Whilst the general economy suffers, old infrastructure collapses, man-made environmental crises abound, retailers go bankrupt, millions are foreclosed upon and are left homeless (whilst at the same time hundreds of thousands of houses lie empty and decaying) and real average incomes are decimated, perversely, banking bonuses and lobbyists' incomes have skyrocketed and the powers of the Fed and other central banks have increased because of increased regulatory duties despite their previous failures.<ref>[http://www.guardian.co.uk/politics/2011/jan/10/banks-unlimited-bonuses-ministers Banks given go-ahead to pay unlimited bonuses], Guardian UK</ref><ref>[http://www.creditcrunch.co.uk/forum/topic/9253-banking-cheats-will-always-prosper/ Bank Cheats Will Always Prosper], CreditCrunch.co.uk</ref><ref>[http://dailyreckoning.com/the-expanding-industry-of-us-government/ The Expanding Industry of US Government], Bill Bonner</ref> Despite this obvious incompetence and despite repeated failures of policy at the highest levels, anyone advocating solutions beyond those approved within failed mainstream two-party thought is commonly labelled "insane", "crazy" or an "extremist".<ref>[http://www.salon.com/news/opinion/glenn_greenwald/2010/05/28/crazy Who are the real "crazies"?], Glenn Greenwald, Salon.com</ref><ref>[http://lewrockwell.com/orig11/mullen-t4.1.1.html Extremism is the New Race Card], Tom Mullens</ref><ref>[http://www.telegraph.co.uk/finance/financialcrisis/8669352/Global-slump-warnings-if-US-triggers-insane-default.html Global slump warning if US triggers 'insane' default], Ambrose Evans-Pritchard</ref> Noted gold investor, Jim Sinclair, has publicly stated that the chaos has one cause - bankers have bought governments around the world and today's bankers are little more than irredeemably shallow "sociopaths", unable to grow a conscience and unable to foresee or care about the broader societal consequences of their actions beyond their own incestuous social groupings.<ref>[http://jsmineset.com/2009/08/31/china-invokes-a-stop-loss-on-otc-derivatives/ OTC Derivatives], Jim Sinclair</ref><ref>[http://maxkeiser.com/2011/07/17/alex-jones-on-satanic-rituals-of-bohemian-grove/ Alex Jones on Bohemian Grove], RTTV</ref> Leading British specialists in the pathology of the psychopath, Professors Robert Hare and Paul Babiak suspect the banking industry does indeed attract psychopaths and probably has a much higher proportion of mentally unstable psychopaths as executives compared to other industry sectors, although their comprehensive test (determining the degree of psychopathology in the workplace) has yet to be applied to the banking sector or to senior government officials or politicians.<ref>[http://www.ft.com/intl/cms/s/0/41fe2882-9cbe-11e0-bf57-00144feabdc0.html#axzz1QH9AQOwG Alfred Hitchcock' 'The Bankers'], James Makintosh, FT.com</ref> Michael Price, co-director of the Centre for Culture and Evolutionary Psychology at Brunel University in London agrees that the characteristics that make for good traders and investment bankers are very similar to those that define psychopaths. Former UK drug tsar David Nutt has stated that the banking crisis was caused by too many bankers taking cocaine.<ref>[http://www.telegraph.co.uk/finance/financialcrisis/9993266/Financial-crisis-caused-by-too-many-bankers-taking-cocaine-says-former-drugs-tsar.html Financial crisis caused by too many bankers taking cocaine], ''Telegraph''</ref> Therefore, given their likely sociopathic mind-set and hedonistic cocaine drug culture, provided they themselves are acquiring a greater share of gross national income, many bankers simply do not care about the consequences and will continue to label others as "crazy" or "insane" or "terrorists" for so long as it gives them cover to engage in their own [[embezzlement|criminal]] conduct and for so long as it permits the in-bred corruption to continue at the highest levels.<ref>[http://www.mises.org/daily/6314/Why-Bankers-Avoid-the-Public-Eye Banking and the State]</ref><ref>[http://blogs.telegraph.co.uk/news/nilegardiner/100099341/joe-biden-compares-the-tea-party-to-terrorists-is-this-the-most-crass-and-nasty-white-house-in-modern-us-history/ Joe Biden compares the Tea Party to terrorists], Nile Gardiner, UK Telegraph</ref> If the charade collapses and the elite are threatened, they will simply kill anyone who threatens them, as they have proven to do repeatedly in the past.<ref>[http://www.lewrockwell.com/lewrockwell-show/2011/02/15/187-confessions-of-an-economic-hit-man/ Confessions of an Economic Hit-Man], John Perkins</ref>

It should be noted that average bankers still earn around US$370,000<ref>[http://www.guardian.co.uk/business/2011/jan/14/jp-morgan-bankers-share-10bn Anger as JP Morgan bankers get $10bn pay and bonus pot]</ref> (or around £236,000 in the UK)<ref>[http://www.guardian.co.uk/business/2011/feb/15/barclays-capital-average-pay-236000-pounds Barclays investment bankers see average pay rise to £236,000]</ref> and this has steadily increased even in the aftermath of the financial crisis. Those who head up the "Too Big To Fail" banks earn around US$18 million per year, with some executives doubling their own pay in 2010.<ref>[http://www.guardian.co.uk/business/2011/apr/02/lloyd-blankfein-executive-pay-bonuses Goldman Sachs CEO's pay nearly doubles despite slump in profits]</ref> Lawyers who service and support the international banking and business community are reported to be earning up to US$2 million a year even in small peripheral countries such as Australia.<ref>[http://www.afr.com/p/national/legal_affairs/talent_war_pushes_star_lawyers_pay_ZDlK7zEXWaISbNy1QCtIUO Anger as JP Morgan bankers get $10bn pay and bonus pot]</ref>

Given many of these people are not actually producing services people would voluntarily pay for in a genuine free market economy, many of these service providers associated with the issuance and distribution of monopoly currency would be made redundant or be rendered unemployable almost immediately upon a return to a true free market gold standard. It is to be expected that these people would be violently opposed to any change in the ''status quo'' given the dramatic change in lifestyle that this would necessitate. In particular, it is to be expected that these people would specifically oppose the abolition of legal tender laws and fight against any formal declaration by any government that fractional reserve banking is a form of [[embezzlement]] or counterfeiting, or that the current financial system is a [[Ponzi scheme]] (which are generally illegal in most Western countries if they are not government-supported).

Jim Sinclair suggests that many senior participants in the international banking and derivatives industry should be jailed<ref>[http://jsmineset.com/2010/10/31/jims-mailbox-573/ Debt Burden Being Transferred], Jim Sinclair</ref> to protect the public from repeatedly being "raped"<ref>[http://jsmineset.com/2010/11/21/in-the-news-today-713/ EU Ministers Said To Plan Meeting Over Ireland], Jim Sinclair</ref> by their scams and has the following conclusion on his website:<ref>[http://jsmineset.com/2010/11/09/in-the-news-today-701/ There is no practical solution], Jim Sinclair</ref>

{{quote|For years I have been telling you that there is NO PRACTICAL SOLUTION to the total of all the mistakes that have been made since Roosevelt, in a depression, started it all.}}

Jim Sinclair considers it too late to save the system<ref>[http://www.youtube.com/watch?v=IF24atvNkSo&feature=player_embedded Jim Sinclair Interviewed by James Turk] Quote: "Who needs enemies when we have the financial leadership we have?"</ref> and recommends people become self-sufficient and buy gold to await the inevitable collapse of the political and economic system and the associated breakdown in the division of labor.<ref>[http://jsmineset.com/2011/04/07/the-system-has-failed/ The System Has Failed], Jim Sinclair</ref>

Max Keiser has stated that the culture of actual ''physical'' sexual coercion and harrassment allegedly exhibited in the financial services industry is simply symptomatic and an outgrowth of a culture of ''financial'' rape and exploitation.<ref>[http://www.youtube.com/watch?v=skwj6e9xvH8&feature=player_embedded#at=102 Savers vs Speculators] Quote: Max Keiser: "Munich Re, a financial terrorist responsible for creating ghettos. Financially disadvantaged folks who are on the short end of the 'ghettoization' of the financial terrorist schemes...are forced to wear ''yellow armbands'' and be ''sex slaves'' for their German hosts." Stacy Herbert: "Yes. And be stamped on their arms afterward to prove that they were used." Max Keiser: "Yes. Let's not forget the little serial code-stamp on the wrist as part of the package." Stacy Herbert: "But Max, the story here is that this goes from the very bottom. These are just agents going door-to-door selling insurance products in the financial services industry. The top of the pyramid of the banking Establishment is Dominique Strauss-Kahn." Max Keiser: "This is a culture. Dominique Stauss-Kahn is part of the banking ''culture''. There's Dominique Strauss-Kahn, Lloyd Blankfein, Jamie Dimon, this guy Pandit over at Citigroup, the CEO just paid himself $42 million for stealing $420 million - they have a culture of predator behavior where once you - like a serial killer - once you steal money from people with mortgage fraud or with banking fees that are illegitimate or with collateralized debt obligations you get a taste for serial financial killing. You graduate to these higher crimes and you become a Dominique Strauss-Kahn or a Lloyd Blankfein or a Jamie Dimon where serial financial murder is part of your day-to-day life. That's the culture you live in."</ref> In order to be part of the system, you must be blind to its consequences. Therefore, no one with a conscience can become powerful enough within the system to fundamentally change trajectory from its current catastrophic path.<ref>[http://www.youtube.com/watch?v=WqyCjR9JEMA&feature=player_embedded Nothing Stops Banks], Matt Taibbi</ref>

Ironically, many victims of rape and abuse come to blame themselves and never fight back, preferring to adapt to a life of abuse or enslavement. This is called "learned helplessness" in psychological terms. Doug French finds a direct analogy between the dynamics of ''physical'' rape and ''financial'' abuse, with many indebted individuals ''blaming themselves'' for their predicament and refusing to default on their debts, even though it would be in their clear financial interest to do so.<ref>[http://mises.org/daily/5409/BatteredHomeowner-Syndrome Battered Homeowner Syndrome], Doug French. Quote: 'Lenore Walker is the pioneer in the field of battered-spouse syndrome, with her book The Battered Woman. She believes that experiencing the repeated cycles of violence can result in a spouse developing "learned helplessness," a psychological state identified by psychologist Martin Seligman. The abused believe they lack control over their situation and are convinced escape is impossible. Their motivation to escape diminishes as they become increasingly passive.

Walker explains that the constant cycles of violence and reconciliation result in the following beliefs:

The abused

believes that the violence was his or her fault,
has an inability to place the responsibility for violence elsewhere,
fears for his/her life and/or the lives of his/her children, and
has an irrational belief that the abuser is omnipresent and omniscient.

These beliefs are strikingly similar to what underwater homeowners feel.

The abused believes that the violence was his or her fault. "It was my own fault for buying a house at the top of the market in the first place and borrowing too much money to do it." "I made my bed, now I must sleep in it, no matter how much financial pain it causes me."

The abused has an inability to place the responsibility for violence elsewhere. "It's nobody's fault but my own," say people with 20/20 hindsight. "Nobody made me sign the mortgage. I'm so stupid. The bank doesn't have to negotiate with me."

The abused fears for his/her life and/or the lives of his/her children. "My credit will be ruined. I won't be able to rent an apartment. My low credit score may keep me from getting a job. I don't want to uproot the kids and have to admit that daddy and mommy made a financial mistake."

The abused has an irrational belief that the abuser is omnipresent and omniscient. The abuser in this case is the lender or owner of the mortgage. The borrower fears that these lenders can take everything they have, leave them with nothing, and make their lives miserable forever.

At the same time, default moralizers reinforce these feelings. They have no sympathy for those making a poor housing and mortgage choice. A person must suffer the consequences of their actions, it's claimed.'</ref>

John Perkins, author of ''Economic Hitman'', has openly stated that the U.S. government is merely a front runner for major corporate interests and has brutally assassinated leaders of countries where reform has been attempted.<ref>[http://www.youtube.com/watch?v=xmU9R-BaFIQ Max Keiser Interview with John Perkins]</ref> The zealotry and extremism against genuine and honest monetary reformers on the one hand and the payoffs and largesse given to unprincipled and corrupt supporters of the current monetary regime on the other ensure there is no path of reform left for those potential leaders with a conscience.<ref>[http://www.zerohedge.com/article/more-political-capture-goldman-hires-top-republican-fed-transparency-foe-spends-more-time-se More Political Capture], ZeroHedge</ref>

Dimitry Orlov, author of ''Reinventing Collapse'', has written extensively about the striking similarities between the collapse of the USSR and the multiple environmental, economic and social crises facing the USA. He also predicts economic, political and social collapse in much of the West and in particular predicts that peak oil will result in some countries being cut off completely from oil supplies resulting in sudden social upheaval and starvation and believes that it is too late for any kind of meaningful reform:<ref>[http://www.youtube.com/watch?v=KLdwzcA9ZdM&feature=player_embedded#at=997 Dimitry Orlov Interview with Max Keiser - ''Reinventing Collapse'']</ref>

{{quote|(US military adverturism overseas) is just a very striking example of being unable to stop, even though what you're doing isn't actually working...

By demolishing as much of the social infrastructure as exists in the country... you will end up with an even less literate population that will be unable to oppose the government, unable to stand up for themselves and demand that their rights and needs be met...

People who think they can somehow skirt the financial system are wrong. They will be dominated by the Bernankes of this world and others. There isn't really a way out except to make do without money. And that's kind of what I try to explain to people is: Reduce your needs for any kind of interaction with the official economy and you will do better.}}

Given these repeated financial crises arising from the fiat monetary system, many [[monetary reform]]ers predict that there will inevitably be widespread default or hyperinflation or depression - or most likely all three simultaneously in what Ludwig von Mises predicted would be a "final and total catastrophe" of our unsustainable, Ponzi-like, fiat monetary system.<ref>[http://mises.org/daily/5041/Whats-Behind-the-Currency-War What's Behind the Currency War], Anthony Mueller</ref> After this "catastrophe"<ref name="Landis_Reprieve">[http://www.goldensextant.com/SavingtheSystem.html Fiat's Reprieve: Saving the System, 1979-1987], Robert K. Landis, August 21, 2004.</ref> in which a significant proportion of the population may die through starvation or war<ref>[http://lewrockwell.com/bonner/bonner602.html We're all going to die]</ref><ref>[http://www.zerohedge.com/article/20-signs-horrific-global-food-crisis-coming?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+zerohedge%2Ffeed+%28zero+hedge+-+on+a+long+enough+timeline%2C+the+survival+rate+for+everyone+drops+to+zero%29 20 Signs], ZeroHedge</ref><ref>[http://www.lewrockwell.com/adams-m/adams-m15.1.html US Agriculture Collapse]</ref><ref>[http://www.marketoracle.co.uk/Article26605.html Population Reduction], Chris Kitze</ref><ref>[http://www.rickackerman.com/2011/03/getting-the-jump-on-a-possible-food-shortage/ Getting the Jump on Food Shortages], Marilyn Ackerman</ref><ref>[http://www.goldismoney2.com/archive/index.php/t-524.html?s=d418ff253326772a09e1a8d992da7753 Venetian Bankers and the Dark Ages]</ref><ref>[http://mises.org/daily/6142/The-Apocalyptic-Vision-of-The-Road The Road], Ben O'Neill</ref> a spontaneous market-induced return to the [[gold standard]] is anticipated to be the most likely result.<ref>[http://www.youtube.com/watch?v=VMngK0t5WkY Mike Maloney interview with Max Keiser], The Keiser Report</ref><ref name="Landis_Reprieve" /><ref>[http://globaleconomicanalysis.blogspot.com/2011/02/us-dollar-about-to-lose-reserve.html US Dollar About to Lose Reserve Currency Status: Fact or Fiction?], MISH</ref><ref>[http://www.marketoracle.co.uk/Article40253.html The Great Gold Redemption], Peter Schiff</ref> Other possible solutions following the catastrophe include a return to legally enforced full reserve banking combined with the issuance government-issued debt-free [[fiat currency]], or [[free banking]] and the issuance of private coinage and private money. If these solutions are not initiated soon, it can be expected that a complete financial "meltdown" will ensue at some stage, as environmental crises and destruction of arable land slow GDP growth in developing nations and fewer young people in developed economies can be found who are willing to go into debt in sufficient magnitude to pay off the debts that have already been accumulated.<ref name="Bonner_Swan" /><ref name="Landis_Reprieve" /> As extreme inequality increases, [[foreclosure]]s mount and financial crises repeatedly erupt, many believe a political crisis will eventually result in calls for revolution and fundamental [[monetary reform]].<ref>[http://www.youtube.com/watch?v=uV_gwvSibmM&feature=player_embedded#at=510 Max Keiser on Alex Jones]</ref><ref>[http://www.youtube.com/watch?v=VMngK0t5WkY Mike Maloney interview with Max Keiser], The Keiser Report</ref><ref name="Landis_Reprieve" /> However, as noted above, some commentators consider that it is already too late to avoid a combined financial, environmental and demographic catastrophe even if reform is now attempted.<ref>[http://globaleconomicanalysis.blogspot.com/2011/03/oil-prices-are-double-edged-sword-peak.html Peak Everything?], MISH</ref><ref>[http://www.population-security.org/28-APP2.html NSSM 200 Directive], Henry A. Kissinger, April 24, 1974</ref><ref>[http://www.youtube.com/watch?v=0KInB2rvgaY&feature=fvsr Eco Eco Disaster], Keiser Report</ref>

Even if worldwide economic catastrophe cannot be averted at this stage of the metastasizing financial crisis, choices will still need to be made by each government in response to the crisis. On-going, worsening, [[debt]]-created crises in the economy and society (and the unsustainable damage to the [[environment]] caused by debt-created [[overconsumption]]) are likely to turn monetary and economic policies either to the extreme left or to the extreme right, as there are a number of competing solutions to the debt-based monetary "problem".<ref>[http://www.youtube.com/watch?v=jqjyk2cx5WU&feature=player_embedded#at=696 Taste of Freedom E126], Max Keiser, Keiser Report</ref> It should be noted that some commentators consider that Western governments have in recent years chosen a combination of the "worst" of all possible options: bailing out banks and increasing government spending and indebtedness whilst periodically trying to enforce austerity against the middle class and the ordinary working class.<ref>[http://www.zerohedge.com/news/2013-01-26/daniel-hannan-destroys-3-unquestionable-myths-our-crisis Daniel Hannan Oxford Speech]</ref> Some have called Western government policy reactions to the financial crisis as a decisive move towards "Crony Capitalism" that is neither "free market" nor "socialist" but rather the last desperate acts of a corrupt banker-government cabal of "counterfeiters".<ref>[http://www.zerohedge.com/news/2013-02-06/guest-post-all-well All Is Well], Jim Quinn</ref><ref>[http://www.mises.org/daily/6314/Why-Bankers-Avoid-the-Public-Eye Banking and the State]</ref><ref>[http://www.marketoracle.co.uk/Article37021.html Why We Are Bailing Out the Banks], Jesse</ref><ref>[http://www.economist.com/news/books-and-arts/21565142-how-america-bailed-out-banks-rather-its-citizens-crisis-mismanagement How America bailed out the banks rather than its citizens] ''The Economist''</ref><ref>[http://www.lewrockwell.com/rothbard/frb.html Fractional Reserve Banking], Murray Rothbard</ref> If this is correct, the destruction of economic capital in those countries adopting the Crony Capitalist model in response to the financial crisis will likely result in the descent into quasi-Third World status.<ref>[http://seekingalpha.com/article/309501-how-the-u-s-is-quickly-becoming-a-third-world-country-part-1 How the US is quickly becoming a Third World Country], Seeking Alpha</ref><ref>[http://www.lewrockwell.com/spl2/us-becoming-third-world.html 10 Signs the US is becoming a Third World Country]</ref><ref>[http://www.youtube.com/watch?v=qDKvSMZNgjc Peter Schiff Rips Paul Krugman on Economy]</ref><ref>[http://www.zerohedge.com/news/2013-07-24/guest-post-bankers-own-world Bankers Own the World]</ref>

===Libertarians, Austrians and commodity money===

[[Libertarians]] and [[Austrian School]] supporters envision a voluntary society of free markets (where banks - however large - are allowed to fail if they cannot perform their obligations),<ref>[http://www.zerohedge.com/news/2013-01-26/daniel-hannan-destroys-3-unquestionable-myths-our-crisis Daniel Hannan Oxford speech]</ref> small government<ref>[http://www.prudentbear.com/index.php/thebearslairview?art_id=10473 Models of Capitalism], Michael Hutchinson</ref> and the abolition of monopolistic legal tender laws,<ref>[http://mises.org/daily/5562/The-Real-Solution-to-the-Debt-Problem The Real Solution to the Debt Problem], David D'Amato</ref><ref>[http://lewrockwell.com/paul/paul766.html Legalize Currency Competition], Ron Paul</ref> allowing money backed by a ''free market''<ref>[http://www.lewrockwell.com/blog/lewrw/archives/94712.html Subcommittee Explores Sound Money]</ref><ref>[http://mises.org/daily/5562/The-Real-Solution-to-the-Debt-Problem The Real Solution to the Debt Problem], David D'Amato</ref> [[gold standard]] or [[silver standard]] to come back in circulation (or some other free market money system such as Bitcoin).<ref>[http://www.salon.com/2013/03/22/a_libertarian_nightmare_bitcoin_meets_big_government/ Bitcoin]</ref><ref>[http://lewrockwell.com/north/north1009.html Counterfeit Gold Standards], Gary North</ref><ref>[http://lewrockwell.com/orig11/krolman5.1.1.html Accidentally Conceived in 1971], Arthur M.M. Krolman</ref><ref>[http://www.marketoracle.co.uk/Article27532.html Why Monetary Expansion Must Stop], Patrick Barron</ref><ref>[http://www.marketoracle.co.uk/Article26339.html Silver and Opium], Antal E. Fekete</ref><ref>[http://www.marketoracle.co.uk/Article25212.html The Faults of FRB], Thorsten Polleit</ref> It should be noted that even a partial return to the gold standard (allowing foreign central banks to redeem US government bonds in US gold) would result in the gold price having to rise to approximately $20,000 per ounce.<ref>[http://www.zerohedge.com/news/2013-02-26/central-banks-cannot-create-wealth-only-liquidity Central Banks Cannot Create Wealth]</ref><ref>[http://www.youtube.com/watch?v=2rJspP6q3g8 Mike Maloney Interview with Max Keiser]</ref>

It must be emphasized that a ''necessary'' pre-condition in establishing a true free-market order would be the complete abolition of all legal tender laws<ref>[http://www.nysun.com/opinion/ron-paul-upping-the-ante-in-his-campaign/87502/ Ron Paul Upping the Ante]</ref> and the abolition of monopolistic central banking, including repeal of the [[Federal Reserve Act]] of 1913.<ref>[http://mises.org/daily/5562/The-Real-Solution-to-the-Debt-Problem The Real Solution to the Debt Problem], David D'Amato</ref><ref>[http://www.drschoon.com/articles%5CSilverGoldAndTheLastAmericanHeroJFK.pdf Silver, Gold and the Last American Hero JFK], Darryl Robert Schoon. Extracted quote from Ron Paul: "The United States Constitution grants to Congress the authority to coin money and regulate the value of the currency. The Constitution does not give Congress the authority to delegate control over monetary policy to a central bank. Furthermore, the Constitution certainly does not empower the federal government to erode the American standard of living via an inflationary monetary policy." Note: Another argument – that the power to "coin" money precludes issuance of paper money, and that the government must redeem paper money with "precious metal" – was dismissed as frivolous in ''Milam v. United States'', citing the Legal Tender Cases.</ref><ref>[http://www.lewrockwell.com/blog/lewrw/archives/73833.html End the Fed], Freedom Watch</ref><ref>[http://mises.org/daily/4860 Money: Sound and Unsound], Mark Thornton commentary on Joseph Salerno's book</ref><ref>[http://www.prudentbear.com/index.php/thebearslairview?art_id=10471 Gold Standard Renaissance?]</ref><ref>[http://www.marketoracle.co.uk/Article24632.html The Gold Standard Never Dies], [[Lew Rockwell]]</ref><ref>[http://www.prudentbear.com/index.php/thebearslairview?art_id=10471 Gold Standard], Michael Hutchinson</ref><ref>[http://mises.org/store/Money-Bank-Credit-and-Economic-Cycles-P290C0.aspx Money, Bank Credit and Economic Cycles], Jesus Huerta de Soto, Mises Institute ISBN: 978-1-933550-39-8</ref><ref>[http://radio.goldseek.com/griffin04.10.10.php Goldseek interview] with [[G. Edward Griffin]]</ref><ref>See also these [[Murray Rothbard]] articles: [http://www.mises.org/money.asp What Has Government Done to Our Money?], [http://www.mises.org/story/1829 The Case for the 100% Gold Dollar]; [http://www.lewrockwell.com/rothbard/cartelization.pdf The Fed as Cartel], [http://www.lewrockwell.com/rothbard/rothbard191.html Private Coinage], [http://www.lewrockwell.com/rothbard/rothbard190.html Repudiate the National Debt]; [http://www.lewrockwell.com/rothbard/rothbard181.html Taking Money Back], [http://www.lewrockwell.com/rothbard/rothbard163.html Anatomy of the Bank Run], [http://www.lewrockwell.com/rothbard/rothbard128.html Money and the Individual]</ref> "Capitalism" or "the free market" cannot be blamed or held responsible for current dire economic conditions given this coercive government prohibition against competition in currency creation.<ref>[http://mises.org/daily/5562/The-Real-Solution-to-the-Debt-Problem The Real Solution to the Debt Problem], David D'Amato</ref> Some Keynesians dismiss this desire to return to the gold standard by pointing out that financial crises occurred prior to the creation of the Fed.<ref>[http://www.pbs.org/newshour/businessdesk/2013/06/paul-krugman-on-why-david-stoc.html Paul Krugman Interview]</ref><ref>[http://www.frbsf.org/economic-research/publications/economic-letter/2013/may/crises-before-after-creation-fed/ Crises Before and After the Fed]</ref> Austrians counter by stating that such crises, although possibly less frequent, have been more severe and long-lasting ''after'' the creation of the Fed.<ref>[http://mises.org/daily/3466 ABCT]</ref> In addition even those "panics" which occurred prior to the creation of the Fed had monetary causes relating to fractional bank regulation and speculation.<ref>[http://mises.org/document/695/ Panic of 1819}</ref> Some Libertarians would also support experimentation with [[full reserve banking]],<ref>[http://mises.org/daily/4860 Money: Sound and Unsound], Mark Thornton commentary on Joseph Salerno's book</ref><ref>[http://mises.org/store/Money-Bank-Credit-and-Economic-Cycles-P290C0.aspx Money, Bank Credit and Economic Cycles], Jesus Huerta de Soto, Mises Institute ISBN: 978-1-933550-39-8</ref><ref>[http://www.mises.org/Books/mysteryofbanking.pdf Murray Rothbard, ''The Mystery of Banking'']</ref> recognizing that when fractional-reserve banking is combined with the gold standard a strong cyclical bias (and the systematic transfer of real wealth to the banking system) is normally inevitable.<ref>[http://mises.org/daily/5174/Life-with-the-Fed-Sunshine-and-Lollipops Life With The Fed], Thomas Woods</ref><ref>[http://mises.org/daily/5185/The-Need-for-100-Reserves The Need for 100% Reserves], Frank D. Graham</ref> Those Libertarians who support full reserve banking would strongly support more flexible and forgiving bankruptcy laws in a fractional reserve banking environment, recognizing that no stigma should be attached to bankruptcy given the anti-Libertarian "unjust acquisition" of real wealth implicit in central banking, compulsory legal tender laws, fractional reserve banking and taxation.<ref>[http://mises.org/daily/4860 Money: Sound and Unsound], Mark Thornton commentary on Joseph Salerno's book</ref><ref name="Repudiating the National Debt">[http://mises.org/article.aspx?Id=1423 Repudiating the National Debt], Murray Rothbard</ref><ref>[http://www.mises.org/Books/mysteryofbanking.pdf Murray Rothbard, ''The Mystery of Banking'']</ref><ref>[http://gonzalolira.blogspot.com/2010/12/want-to-ruin-your-own-country-assume.html Want to Ruin Your Country?]</ref>

In the absence of sound money, over time large private corporations become mere extensions of powerful government and banking fiat.<ref>[http://www.zerohedge.com/news/2013-04-03/david-stockman-keynesian-endgame The Keynesian Endgame], David Stockman</ref><ref name="death"/><ref>[http://mises.org/rothbard/newlibertywhole.asp For A New Liberty], Murray Rothbard</ref><ref>[http://news.goldseek.com/EuroCapital/1313178959.php The Fix is In], Peter Schiff</ref> David Stockman has stated the following:.<ref>[http://www.zerohedge.com/news/2013-04-03/david-stockman-keynesian-endgame The Keynesian Endgame], David Stockman</ref>

{{quote|It not only shows that the so-called recovery is tenuous and highly skewed to a small slice of the population at the top of the economic ladder, but also that statist economic intervention has now become wildly dysfunctional. Largely based on opulence at the top, Wall Street brays that economic recovery is under way even as the Main Street economy flounders. But when this wobbly foundation periodically reveals itself, Wall Street petulantly insists that the state unleash unlimited resources in the form of tax cuts, spending stimulus, and money printing to keep the simulacrum of recovery alive.}}

Libertarians such as Murray Rothbard argue that in such a toxic monetary environment resource allocation is perverted by some or all of the following factors: corrupt alliances between so-called "private corporations" (which are often extensions of government or banking interests) and regulators; increasingly intensive business structures to suit the needs of a concentrated and cartelized banking system; and the constant overriding of small communities and local government planning with central government directives to satisfy the needs of big business.<ref>[http://news.goldseek.com/EuroCapital/1313178959.php The Fix is In], Peter Schiff</ref><ref name="death"/> In such a corrupted monetary system, libertarians argue that financial and man-made environmental crises cannot legitimately be blamed on "private" corporations but rather blame must fall squarely on the true source of the problem - centralized government control of credit and money, which in turn dilutes private property rights (especially in relation to traditional owners and farmers) and creates massive distortions in scarce resource allocation, with financial ''and'' environmental crises being the predictable consequence.<ref name="death"/><ref>[http://mises.org/rothbard/newlibertywhole.asp For A New Liberty], Murray Rothbard</ref><ref>[http://maxkeiser.com/2011/06/11/ote114-on-the-edge-with-peter-schiff/ Peter Schiff Interview with Max Keiser]</ref><ref>[http://www.marketoracle.co.uk/Article29029.html Getting Used to Life without Food], F. William Engdahl</ref>

Regarding the current accumulation of government bonds and private debt, many Libertarians believe that the creation of the [[Federal Reserve System|Federal Reserve]] under the [[Federal Reserve Act]] of 1913 was unconstitutional and consider that at least some of this accumulated debt should be canceled or forgiven ''prior'' to a return to the gold standard in recognition of its fundamental illegitimacy.<ref>[http://www.zerohedge.com/news/guest-post-federal-debt-criminal-scam-federal-reserve-criminal-syndicate Federal Debt As Criminal Scam], Charles Hugh Smith</ref><ref>[http://www.marketoracle.co.uk/Article29433.html The Never-Ending Economic Depression], Washington Blog</ref><ref>[http://www.zerohedge.com/article/antal-feketes-open-letter-ron-paul-impeach-bernanke Antal Fekete's Letter to Ron Paul]</ref><ref name="Repudiating the National Debt"/><ref>[http://www.youtube.com/watch?v=1zMv4Offm_8&feature=player_embedded#at=1341 Max Keiser Interview with Alex Jones]</ref><ref>[http://www.zerohedge.com/news/guest-post-federal-debt-criminal-scam-federal-reserve-criminal-syndicate Federal Debt As Criminal Scam], Charles Hugh Smith</ref><ref>[http://blog.mises.org/18590/roubini-thoroughly-confused-by-austrian-economics/ Roubini Confused], Justin Ptak</ref> Arguably this would be supported by the "just acquisition" jurisprudence of legal philosopher [[Robert Nozick]] and Libertarian advocate [[Murray Rothbard]].<ref name="Repudiating the National Debt"/> As Murry Rothbard states:<ref>[http://angloaustria.blogspot.com/2010/05/quote-of-day-on-repudiation.html The Ethics of Liberty], Murray Rothbard</ref>

{{quote|Many libertarians fall into confusion on specific relations with the State, even when they concede the general immorality or criminality of State actions or interventions. Thus, there is the question of default, or more widely, repudiation of government debt. Many libertarians assert that the government is morally bound to pay its debts, and that therefore default or repudiation must be avoided. The problem here is that these libertarians are analogizing from the perfectly proper thesis that private persons or institutions should keep their contracts and pay their debts. But government has no money of its own, and payment of its debt means that the taxpayers are further coerced into paying bondholders. Such coercion can never be licit from the libertarian point of view. For not only does increased taxation mean increased coercion and aggression against private property, but the seemingly innocent bondholder appears in a very different light when we consider that the purchase of a government bond is simply making an investment in the future loot from the robbery of taxation.}}

In late 2010, financial commentator Max Keiser started the [[Buy Silver Crash JP Morgan Campaign 2010]] in an attempt to expose the flaws underlying the [[fractional reserve banking]] system.<ref>[http://www.youtube.com/watch?v=1zMv4Offm_8&feature=player_embedded#at=1341 Max Keiser Interview with Alex Jones]</ref><ref>[http://www.youtube.com/watch?v=_IKbAmsGey0&feature=player_embedded#at=66 Bob Chapman Silver Predictions]</ref><ref>[http://www.guardian.co.uk/commentisfree/2010/dec/02/jp-morgan-silver-short-selling-crash Want JP Morgan to crash? Buy silver], Max Keiser</ref>

Spontaneous protests against the Federal Reserve and the current financial system commenced in September 2011 across the United States and current protests can be found on the [http://www.occupytogether.org/ OccupyTogether.org] website.

====Free Banking and Full Reserve Banking====

On the issue of the required level of bank reserves, Austro-libertarians are sharply divided on the optimal solution to eliminate the price distorting and destructive forces inherent in fractional reserve banking.<ref>[http://www.thedailybell.com/29047/Anthony-Wile-Antal-Fekete-Gold-Backwardation-and-the-Collapse-of-the-Tacoma-Bridge Antal E Fekete]</ref><ref>[http://mises.org/journals/qjae/pdf/qjae13_4_2.pdf Fractional Reserve Free Banking: Some Quibbles], Philip Bagus and David Howden</ref><ref name="Cochran_Free">John P. Cochran. [http://mises.org/daily/4898 ''Free Banking''], ''Mises Daily'', review of ''Free Banking: Theory, History, and a Laissez-Faire Model'' by Larry Sechrest</ref><ref>[https://mises.org/journals/qjae/pdf/qjae15_2_3.pdf Against Monetary Disequilibrium Theory], Laura Davidson</ref>

Some Austrian scholars advocate "free banking", where banks are legally permitted to engage in fractional-reserve banking activities ''provided'' they comply with the standard laws against fraud and are not supported in any way against the possibility of bank runs and are forced into bankruptcy should they not be able to pay their debts as and when they fall due.<ref name="Cochran_Free" /> Provided depositors are clearly made aware that their demand deposits are being lent out and are not universally available for immediate withdrawal and provided there is no way in which such banks are propped up in the face of bank runs, free banking advocates do not support outlawing fractional reserve banking as embezzlement ''per se''.

Advocates of this system of banking include Lawrence White, Steven Horwitz, George Selgin, and Kevin Dowd, amongst others.<ref name="Cochran_Free" /> F.A. Hayek also advocated the de-nationalization of money production and implicitly supported a free banking financial system in some of his works on monetary reform.<ref>[http://www.mises.org/store/Free-Market-Monetary-System-A-P553.aspx?AFID=14 ''Free Market Money System''] by [[F.A. Hayek]]</ref>

Rothbardian-oriented Austrian scholars advocate "[[full reserve banking]]", considering fractional-reserve banking and the associated issuance of irredeemable paper money to be inherently fraudulent, unethical, unjust, disruptive and dysfunctional, akin to embezzlement and counterfeiting.<ref>[http://www.zerohedge.com/article/citizen-sues-atlanta-fed-based-allegation-its-issuing-federal-reserve-notes-it-has-no-intent Citizen Sues Atlanta Fed], ZeroHedge</ref><ref>[http://mises.org/journals/qjae/pdf/qjae13_4_2.pdf Fractional Reserve Free Banking: Some Quibbles], Philip Bagus and David Howden</ref><ref>See for example these [[Murray Rothbard]] articles: [http://www.mises.org/money.asp What Has Government Done to Our Money?], [http://www.mises.org/story/1829 The Case for the 100% Gold Dollar]; [http://www.lewrockwell.com/rothbard/cartelization.pdf The Fed as Cartel], [http://www.lewrockwell.com/rothbard/rothbard191.html Private Coinage], [http://www.lewrockwell.com/rothbard/rothbard190.html Repudiate the National Debt]; [http://www.lewrockwell.com/rothbard/rothbard181.html Taking Money Back], [http://www.lewrockwell.com/rothbard/rothbard163.html Anatomy of the Bank Run], [http://www.lewrockwell.com/rothbard/rothbard128.html Money and the Individual]</ref> [[Full reserve banking]] would require banks to retain in reserve all deposits that are legally available for immediate withdrawal, and permit lending only from longer-term deposits.

Advocates of this system of banking include [[Murray Rothbard]],<ref name="The Mystery of Banking">[http://www.mises.org/Books/mysteryofbanking.pdf ''The Mystery of Banking''], Murray Rothbard</ref><ref name="The Case for a 100% Gold Dollar">[http://mises.org/story/1829 The Case for a 100% Gold Dollar], Murray Rothbard</ref> [[Jesus Huerta de Soto]],<ref>[http://www.mises.org/books/desoto.pdf ''Money, Bank Credit, and Economic Cycles''], Jesus Huerta de Soto, First English edition (2006), pp. 98-114</ref> [[Jörg Guido Hülsmann]],<ref>[http://mises.org/media/4014 The Economics of Legal Tender Laws], and [[Jorg Guido Hulsmann]] (includes detailed commentary on [[central banking]], [[inflation]] and [[fractional reserve banking|FRB]])</ref><ref name=FBFB>[http://mises.org/journals/rae/pdf/RAE9_1_1.pdf Free Banking and the Free Bankers], Jörg Guido Hülsmann, Quarterly Journal of Austrian Economics (Vol. 9, No. 1)</ref><ref>[http://www.lewrockwell.com/lewrockwell-show/2011/01/04/181-hyperinflation-ahead/ Interview with Jörg Guido Hülsmann], The Lew Rockwell Show</ref> amongst others.<ref>[http://mises.org/journals/qjae/pdf/qjae13_4_2.pdf Fractional Reserve Free Banking: Some Quibbles], Philip Bagus and David Howden</ref><ref>[http://mises.org/daily/4880 The Faults of Fractional-Reserve Banking], Thorsten Polleit</ref>

Commentators David Stockman and Michael Shedlock also support the creation of full reserve postal savings banks that do not lend out money from checking accounts.<ref>[http://globaleconomicanalysis.blogspot.com.au/2013/04/stockman-fires-back-at-krugman-labeling.html David Stockman Fires Back At Krugman]</ref> According to Michael Shedlock:<ref>[http://globaleconomicanalysis.blogspot.com.au/2013/04/stockman-fires-back-at-krugman-labeling.html David Stockman Fires Back At Krugman]</ref>

<blockquote>And the solution is so easy too. Open a bank that charges nominal fees for checking and makes no loans. Such a bank would not need loan officers or other high-priced personnel. It would offer safekeeping of money and simple checking accounts for a fee.

Those who want interest on their money should have to take a risk, the risk of a possible loss.

Finally, and as I have pointed out before, lending of checking accounts is outright fraud. Checking accounts are supposed to be money available on demand, but since Greenspan authorized Sweeps in 1994, almost none of it is.</blockquote>

Most recently, in late 2010, two British MP's, Douglas Carswell and Steven Baker, sought to introduce legislation into the British Parliament that would allow depositors to decide if their money should be lent out and for what period.<ref>[http://www.telegraph.co.uk/finance/financetopics/financialcrisis/8004540/The-radical-reform-that-would-end-boom-and-bust-in-banking.html ''The Radical Reform in Banking''], Toby Baxendale, ''Daily Telegraph'', 15 Sept 2010</ref> If this legislative reform were to pass, British depositors would have the option to elect to save their money in full reserve bank accounts.

In early 2013, the idea of full reserve banking began to reappear in mainstream circles, after other "remedies" appeared to fail or only defer the next crisis, but not solve the banking "problem".<ref>[http://www.telegraph.co.uk/finance/comment/jeremy-warner/10107375/The-banking-revolution-that-would-wipe-out-Britains-debts.html Banking Revolution]</ref> Even some "establishment" economists such as Jeffrey Sachs has openly criticized unregulated fractional reserve banking, and called for a clear legislative division between heavily regulated and controlled liquidity-supplying high-reserve fractional reserve banking and open unprotected speculation, which would be subject to risk of bankruptcy.<ref>[http://www.youtube.com/watch?feature=player_embedded&v=7VOWnnEphjI Jeffrey Sachs audio]</ref>

Antal E. Fekete of the New Austrian School advocates return of real bills (which are self-liquidating debt) and criticizes the Rothbardian position opposing fractional reserve banking as impractical and ahistorical.<ref>[http://www.thedailybell.com/29047/Anthony-Wile-Antal-Fekete-Gold-Backwardation-and-the-Collapse-of-the-Tacoma-Bridge Antal E Fekete]</ref> He has stated:

<blockquote>The altercation between the American Austrians and the New Austrian School of Economics is a tragic waste of talent. We should settle our differences not by mud-slinging and by calling names, but through high level scientific debates... I sincerely hope that they accept and we can join forces in preparing the ground for the triumph of the gold standard after a brief reactionary period in history dominated by the regime of irredeemable currency.</blockquote>

====Market Money: Gold and Silver and Crypto-Currency====
In the absence of reform, many Austrians and libertarians are actively buying gold and silver and transferring savings to Bitcoin which cannot be created at the whim of governments.<ref>[http://goldinvestingnews.com/26510/peter-schiff-gold-money-fiat-currency-price-outlook-central-banks-investing.html Peter Schiff on Gold and Money]</ref><ref>[http://www.ronpaul.com/on-the-issues/fiat-money-inflation-federal-reserve-2/ Honest Money]</ref><ref>[http://www.lewrockwell.com/paul/paul125.html Fiat Paper Money], Ron Paul</ref><ref>[http://www.mogamboguru.com/writings.html Mogambo Guru]</ref><ref>[http://www.youtube.com/watch?v=O2rsQhsTTbE Max Keiser on Bitcoin]</ref> Many Austrians believe gold and silver and other essential commodities are ideal investments during this period of fiat money expansion and experimentation, as no government in the history of the world has ever escaped economic catastrophe and debasement of the currency after adopting a pure fiat money<ref>[http://historysquared.com/2012/06/26/fiat-currencies-trend-towards-their-intrinsic-value-often-rather-quickly/ Fiat Currencies Trend Towards Their Intrinsic Value]</ref><ref>[http://www.zerohedge.com/news/2013-04-05/guest-post-more-monetary-quackery More Monetary Quackery]</ref><ref>[http://goldinvestingnews.com/26510/peter-schiff-gold-money-fiat-currency-price-outlook-central-banks-investing.html Peter Schiff on Gold and Money]</ref><ref>[http://www.ronpaul.com/on-the-issues/fiat-money-inflation-federal-reserve-2/ Honest Money]</ref><ref>[http://www.lewrockwell.com/paul/paul125.html Fiat Paper Money], Ron Paul</ref><ref>[http://www.professorfekete.com/articles/AEFFiatMoneyInDeathThroes.pdf Fiat Money in Death Throes], Antal E Fekete</ref><ref>[http://www.professorfekete.com/articles%5CAEFAmericanBasesGermanyGoldBasis.pdf American Bases], Antal E Fekete]</ref> and keeping money in bank deposits is becoming increasingly risky as governments renege on promises to keep depositors' money safe.<ref>[http://truthingold.blogspot.com.au/2013/04/the-frightening-truth-about-cyprus-bail.html?showComment=1365106177301 The Truth About the Cyprus "Bail In"]</ref><ref>[http://www.zerohedge.com/news/2013-04-02/ron-paul-great-cyprus-bank-robbery The Great Cyprus Bank Robbery], Ron Paul</ref>

===Neo-Chartalism and Modern Monetary Theory===

Neo-Chartalists and associated advocates of Modern Monetary Theory (MMT) also accept that the current bank-dominated monetary system is dysfunctional, but advocate reform ''within'' the strictures of a fiat monetary system rather than looking to return to a commodity-based monetary system.<ref>[http://www.cnbc.com/id/45795986/Modern_Monetary_Theory_and_Austrian_Economics Modern Monetary Theory and Austrian Economics], John Carney</ref>

Most advocates of MMT support deficit spending to support the economy, believing governments can never go bankrupt in a fiat monetary system.

Austrians and sound money advocates criticize supporters of MMT not in their description of the current monetary system (which many Austrians consider reasonably accurate) but for their "shallow" understanding of the dangers of unfettered government spending through fiat money creation and their "naive" support of deficit spending and inflationary policies as an "easy" way out of economic crises.<ref>[http://www.soundmoneyproject.org/?p=4881 The Upside-Down World of MMT], Robert Murphy</ref><ref>[http://www.zerohedge.com/news/sean-corrigan-crucifies-mmt Sean Corrigan Crucifies MMT], ZeroHedge.com</ref>

===Debt-free fiat money===

The concept of debt-free money is most notably represented by [[Michael Rowbotham]], [[Stephen Zarlenga]] of the American Monetary Institute, Bill Still producer of the well-known ''[http://www.youtube.com/watch?v=JXt1cayx0hs Money Masters]'' videos and [[Ellen Hodgson Brown]].<ref>[http://www.youtube.com/watch?v=6MKjlPmVVK4 Bill Still on gold reserves]</ref> They advocate various forms of "pure" fiat money issuance by government, without the need for the government to issue a bond to print or issue the fiat money. More recently, mainstream economists have begun to seriously consider the issuance of debt-free money as a policy solution to the current ongoing crisis.<ref>[http://blogs.reuters.com/anatole-kaletsky/2013/02/07/a-breakthrough-speech-on-monetary-policy/ A Breakthrough Speech on Monetary Policy], Anatole Kaletsky</ref><ref>[http://krugman.blogs.nytimes.com/2013/01/07/be-ready-to-mint-that-coin/ Be Ready To Mint That Coin], Paul Krugman</ref><ref>[http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/9970294/Helicopter-QE-will-never-be-reversed.html Helicopter QE will never be reversed], Ambrose Evans-Pritchard</ref>

Currently virtually all money issued in modern economies is initially sourced from debt; in other words, it is "debt money" because it is created via some entity (government or business or individuals) borrowing fiat money into existence and the money being created by a bank before it is spent by the government or by a business or by an individual. "Debt money" is therefore money created in parallel with debt or [[Credit (finance)|credit]] via the process of [[fractional reserve banking]] or the issuance of a bond from the central bank.

"Debt-free money" is a "true" or "pure" fiat currency issued by the [[Treasury]] of a [[central government]], where there is no requirement for its eventual return as a condition of its creation (except by way of payment of taxes).<ref name="death"/> It is argued by Rowbotham and others that this would allow for the substantial lowering of tax rates, would allow public works projects to be funded cheaply, and would stimulate economic development, if the fiat money is spent sensibly on inflation-lowering long-term capital projects.<ref name="death"/>

[[Michael Rowbotham]] seeks the cancellation of "unjust" debts (such as [[third world debt]]), and, crucially and most importantly, a [[social security]] [[safety net]] involving a guaranteed minimum [[social credit|debt-free income]] (sourced from government-issued debt-free money independent of any central bank) for all citizens in the debt-based economy. Under this proposal, every adult citizen would be given a livable debt-free income transferred electronically into their [[bank account]], simply by virtue of their [[citizen]]ship. They could then use this debt-free money to pay off their [[mortgage]]s or to live, debt-free, without being compelled to work as a [[wage slavery|wage slave]] in the market economy if they chose not to. The government would finance these payments simply by ordering the private banks to accept their electronic instructions as legal tender. It would therefore not result in the expansion of [[government debt]].<ref name="death"/>

Ex-U.S. Treasury Department analyst Richard C. Cook also supports the issuance of debt-free money and zero-interest credit by the central government and has provided a detailed blueprint of monetary reform recommendations to transition to a debt-free money supply.<ref name="marketoracle.co.uk"/>

Some commentators have speculated that the issuance of massive amounts of debt-free pure fiat money is already happening, and we are currently living in a massive money printing experiment, as so-called "quantitative easing" will never be reversed.<ref>[http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/9970294/Helicopter-QE-will-never-be-reversed.html Helicopter QE will never be reversed], Ambrose Evans-Pritchard</ref> Ambrose Evans-Pritchard has warned:<ref>[http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/9970294/Helicopter-QE-will-never-be-reversed.html Helicopter QE will never be reversed], Ambrose Evans-Pritchard</ref>

{{quote|If Lord Turner's helicopters are ever needed, we can be sure that the Anglo-Saxons and the Japanese will steal a march, while Europe will be the last to move. The European Central Bank will resist monetary financing of deficits until the bitter end, knowing that such action risks destroying German political consent for the euro project.

By holding the line on orthodoxy, the ECB will guarantee that Euroland continues to suffer the deepest depression. Once the dirty game begins, you stand aside at your peril.

A great many readers in Britain and the US will be horrified that this helicopter debate is taking place at all, as if the QE virus is mutating into ever more deadly strains.

Bondholders across the world may suspect that Britain, the US and other deadbeat states are engineering a stealth default on sovereign debts, and they may be right in a sense. But they are warned. This is the next shoe to drop in the temples of central banking.}}

====Properties====
According to its proponents, government-issued debt-free fiat currency (such as debt-free notes and coins) can circulate perpetually in the economy as "stable" money and although not as secure as [[hard currency]], government-issued debt-free notes and coins (such as United States Notes and silver certificates) do not have the same effects of debt-based money (which require pertpetual interest payments to be tied to the creatin of new money).<ref>[http://www.entrewave.com/freebooks/docs/a_pdfs/gnhm.pdf Honest Money]</ref> It should be noted however that fiat currency can be a source of [[hyperinflation]] if its production is not controlled, as the government has the potential to issue unlimited amounts of fiat currency - ''provided'' it is accepted as "money" by the private banking system.<ref>[http://mises.org/books/shorthistorypapermoney.pdf A Short History of Paper Money in the United States], William M. Gouge, Mises Institute</ref> Notably, the Federal Reserve reportedly threatened not to recognize the trillion dollar platinum coin should the Obama Administration try to mint one.<ref>[http://www.buzzfeed.com/zekejmiller/the-trillion-dollar-coin-was-killed-by-the-fed Trillion Dollar Coin Killed By Fed]</ref><ref>[http://webofdebt.wordpress.com/2013/01/18/the-trillion-dollar-coin-joke-or-game-changer/#more-5323 The Trillion Dollar Coin], Ellen Hodgson Brown</ref> Debt-free notes and coins in circulation (being defined as [[Money supply#M0|M0]]) now account for a tiny fraction of the total debt-based M3 [[money supply]] in all modern debt-based economies (and debt-free M0 is also generally less than 10% of the total [[Money supply#M2|M2]] money supply in most developed economies).<ref>[http://www.dollardaze.org/blog/?post_id=00216 Global Money Supply Ratios]</ref>

Instead of [[money]] being created "indirectly" and "furtively" at the point of loan creation by the private banking system, with periodic bailouts to already-rich bankers and a "boomerang" boom-bust cycle as debt levels expand and contract, this debt-free "pure fiat" money would be created directly and openly by the democratically elected government and permanently issued to its citizenry by way of instruction to the private banking system. An example would be the coining of a trillion dollar platinum coin by the US government to pay off some of the Federal debt and continue its deficit spending in times of recession or depression. There would be no requirement for this money to returned (plus interest) and be extinguished as a condition of its creation, which is the central feature of all debt money systems.

Michael Rowbotham argues that this system of "debt-free" money issuance would not dramatically raise consumer prices (or at least would not be as inflationary or as dysfunctional as the current compounding debt-based system). He argues that this would also reduce overconsumption and the associated environmental damage associated with debt-based consumerism. It would also give individuals the free time to engage once again in non-marketable religious, artistic and recreational activities if they chose to do so.<ref name="death"/>

It is acknowledged that, in the absence of tax rates which ensure the return of this "pure" fiat to government coffers, this would be "inflationary" in the traditional sense, but proponents of debt-free fiat money issuance argue that if this "pure" government spending is directed to capital works projects and other long-term projects, this "pure" fiat money issuance would not result in excess price inflation, although it would dramatically increase base money. Michael Rowbotham argues that if bank reserve and capital ratios were increased and bank regulations on derivatives were imposed ''at the same time'' as the increase in "pure" base money was occurring, the two policies would balance each other out and no appreciable price inflation would be felt by the public at large.<ref name="death"/> The increase in base money would be inflationary, but the increase in reserve requirements would be deflationary, resulting in no significant net increase in the total money supply (assuming the government was sufficiently skilled in balancing these forces through the transition to a predominantly debt-free monetary system).

It is to be expected that these policies would be violently opposed by the private banking "elite", as it would render impotent their control over the money supply, dissipating this crucial decision-making power away from its current power base, from private banks to elected governments.<ref>[http://www.thenewamerican.com/economy/economics/item/14238-obama%E2%80%99s-trillion-dollar-coin-exposes-federal-reserve-scam Obama’s Trillion-Dollar Coin Exposes Federal Reserve Scam], Alex Newman, ''New American''</ref><ref>[http://webofdebt.wordpress.com/2013/01/18/the-trillion-dollar-coin-joke-or-game-changer/#more-5323 The Trillion Dollar Coin], Ellen Hodgson Brown</ref> It would also be likely to reduce [[economic growth]], dramatically increase the cost of labor and, potentially, result in an exacerbation of price inflation and malinvestment.<ref>[http://globaleconomicanalysis.blogspot.com/2010/12/fatally-flawed-end-fed-proposal-from.html Fatally Flawed End the Fed Proposal], MISH</ref> However, Rowbotham, Zarlenga and Still all argue that this proposal would address the problem of inequality inherent in a debt-based monetary system and reduce the devastating impact of personal [[bankruptcy]] and allow individual citizens to quickly recover from financial hardship.<ref name="death"/> They also argue that this social security measure (and government spending in general) would not have to be paid for by future generations from future streams of [[income tax]].<ref name="death"/>

====Criticism of "Greenbacker" debt-free money issuance====
In late 2010, [[Ellen Hodgson Brown]] and Austrian School commentator [[Gary North]] engaged in an intense debate over the direction of [[monetary reform]], with gold-standard supporter [[Gary North]] accusing Brown of going down a path that inevitably leads to the economics of fascism and hyperinflation.<ref>[http://www.lewrockwell.com/north/north908.html Criticism of Ellen Hodgson Brown]</ref><ref>[http://www.lewrockwell.com/north/north912.html Ellen Betrays], Gary North</ref> Government deficit spending funded with either paper money or compliant public bank lending is not a substitute for private consumption due to the inability of coercive goverment to invest rationally long-term, given the [[economic calculation problem]] inherent in socialized economies and the interests of governments and politicians being very different from the average consumer.<ref>[http://dailyreckoning.com/downside-after-the-returns-stop-diminishing-part-ii/ Nazi Germany], Bill Bonner</ref> North argues that it is not possible to trust a coercive, non-market entity - government - to limit its spending in circumstances where pure fiat money is in the hands of politicians and that [[inflation]], being an invisible tax, is much harder to resist than regular taxes. Greedy, corrupt, short-sighted politicians could buy off special interest groups to get elected and the general public could only watch on the sidelines as the purchasing power of their dollars steadily declines; this decline would be blamed on currency speculators and eventually foreign currencies (including "natural" monies such as gold and silver and copper) would have to be banned and confiscated from the public to ensure continued use of depreciating fiat.<ref name="North_Congress">Gary North. [http://www.garynorth.com/public/7030.cfm "Economic Error #15: Congress Can Safely Be Trusted to Manage the Money System Without Any Price Inflation."]. Referenced 2011-02-24.</ref> The fundamental error of Brown's analysis, according to North, is that Brown expects the source of the problem - corrupt governments bought and paid for by bankers - to be the source of the solution. She calls for a move away from war spending, whilst recoginizing that the current fiat monetary system favors government spending on war.<ref>[http://www.marketoracle.co.uk/Article28831.html More Efficient Ways to Stimulate Economy], Ellen Hodgson Brown</ref> To date, she has yet to reconcile these inconsistencies in her writings.

[[Mike Shedlock]] agrees with the abolition of fractional reserve banking, but criticizes the concept on similar grounds as North. Commenting on a bill to end the Fed introduced by Representative [[Dennis Kucinich]], he wrote: "Neither sound money nor the free market comes from printing money into existence. Arguably the only thing worse than the Fed printing money out of thin air is Congress printing money out of thin air for the purpose of full employment and/or any other absurd ideas Congress has."<ref>[http://www.marketoracle.co.uk/Article25175.html Kucinich's End the Fed campaign fatally flawed], Mike Shedlock.</ref>

Peter Schiff also believes getting rid of the Fed and returning money issuance to Congress would be worse than the current system.<ref>[http://www.youtube.com/watch?v=kEDmj3qocag Doug Casey Interview with Peter Schiff]</ref>

Austrians criticize leftists' inability to see that printing money and government spending is not the same as voluntary spending by private individuals as government spending distorts the capital structure; does not result in lasting economic growth due to the [[economic calculation problem]]; and is not subject to normal cautious profit and loss considerations given that the government can continually recover from errors by simply printing the money it spends.<ref>[http://www.marketoracle.co.uk/Article28831.html More Efficient Ways to Stimulate Economy], Ellen Hodgson Brown</ref><ref>[http://www.youtube.com/watch?v=qDKvSMZNgjc Peter Schiff Rips Paul Krugman]</ref> They also avoid or ignore the fact that historically governments have often acted in their own self-interest and concentrated power in themselves and their corrupt associates and families rather than benignly ruling for the benefit of the populace and their long-term interests. Every sovereign - without exception - that has been given the unfettered power to print fiat money has eventually printed too much debt-free money and in the end had to ban competing currencies (such as foreign currency or metallic money), and face revolt, revolution, hyperinflation or other social catastrophe.<ref>[http://www.marketoracle.co.uk/Article39762.html Fiat Currency Collapse]</ref>

====Debt-free money issuance: Support from free market Austrians====
In contrast to Gary North's attacks on "Greenbacker" Ellen Hodgson Brown, and Mike Shedlock's criticism of debt-free money printing by Congress as the worst of all choices, noted Austrian monetary economist Joseph Salerno has voiced his support for the idea of debt-free money issuance ''in comparison to the current debt-based system'', if a choice is to be made between the two.<ref>[http://www.mises.org/daily/6350/The-Flipside-of-the-Trillion-Dollar-Coin The Flipside of the Trillion Dollar Coin]</ref> In his defense of the trillion dollar coin idea, he states the following:<ref>[http://www.mises.org/daily/6350/The-Flipside-of-the-Trillion-Dollar-Coin The Flipside of the Trillion Dollar Coin]</ref>

{{quote|Let me be clear: my intention is not to deny that the trillion-dollar coin is a ludicrous and dangerous idea; it is rather to point out that the Fed is a more ludicrous and dangerous idea.}}

In relation to the "dangers" of Congressional control of the money supply, Salerno responds as follows:<ref>[http://www.mises.org/daily/6350/The-Flipside-of-the-Trillion-Dollar-Coin The Flipside of the Trillion Dollar Coin]</ref>

{{quote|Obviously, congressional control of the fiat money supply is far from the ideal monetary system, which involves the complete separation of government and money through the establishment of a commodity money, such as gold, the supply of which is determined exclusively by market forces. Nonetheless, there is much merit in replacing the opaque and pseudo-scientific control of "the money supply process" by the entrenched bureaucrats of the Fed with overtly political control of money by elected officials and partisan Administration appointees.}}

Salerno outlines a number of advantages of "simple inflation" over the current debt-based round-about system of money creation:<ref>[http://bastiat.mises.org/2013/05/bring-on-the-helicopter-money-and-gut-the-fed/ Bring on the Helicopter Money - and Gut the Fed], Joseph Salerno</ref>

{{quote|...as a permanent policy, it would be a wonderful device for wresting control of monetary policy from un-elected, secretive, and pseudo-scientific Fed bureaucrats and placing it under a Congress subject to popular scrutiny and elections. Of course this would not be an ideal system, which would be a hard money consisting of a market supplied commodity like gold. But it would have a number of significant advantages over the present Fed-dominated system. First, as just noted, money creation by Congress would be far more transparent and understandable to the public than the arcane procedures by which the Fed expands the money supply. Second, the injection of new money directly into the economy via government purchases of goods and services would avoid the continual and systematic distortion of financial markets and the interest rate currently caused by Fed open market operations. This process of “simple inflation” as Mises called it would, therefore, certainly produce rising prices but would not generate business cycles of recurring booms and busts. Finally, the Fed could no longer operate as a bailer-outer of last resort, surreptitiously bailing out gigantic domestic and foreign financial institutions in the absence of discussion and consent by Congress and the knowledge of the public.}}

===Public Fractional Reserve Banks===

[[Ellen Hodgson Brown]] supports nationalization of the private banking system once the full losses on the banks' portfolios are recognized.<ref>[http://www.huffingtonpost.com/ellen-brown/restoring-economic-sovere_b_823697.html Restoring Economic Sovereignty], Ellen Hodgson Brown</ref><ref>[http://www.webofdebt.com/articles/new_theory.php Time for a New Theory of Money]</ref><ref>[http://globaleconomicanalysis.blogspot.com/2011/01/steve-keen-responds-to-world-economic.html Exponential Growth], MISH</ref><ref>[http://www.webofdebt.com/articles/force_nationalization.php Foreclosuregate could force bank nationalization]</ref><ref>[http://webofdebt.wordpress.com/2010/12/22/austerity-fails-in-euroland-time-for-some-%e2%80%9cdeficit-easing%e2%80%9d/ Austerity Fails in Europe], Ellen Hodgson Brown</ref> Ellen Hodgson Brown has repeatedly called for the creation of publicly-owned banks similar to the North Dakota model, where the interest earned by these state government-owned banks could be ploughed back into local economies financing public works and local government services instead of being sucked out of local communities into the major commercial banks.<ref>[http://www.marketoracle.co.uk/Article29338.html Why Aren't Banks Lending], Ellen Hodgson Brown</ref> <ref>[http://www.marketoracle.co.uk/Article39053.html Why Bankers Rule the World]</ref> She has cited numerous historical examples where public banks worked successfully for many decades, including in Australia and Costa Rica, as examples of the viability and benefit of public fractional reserve banks.<ref>[http://www.webofdebt.com/articles/commonwealth_bank_aus.php CBA]</ref><ref>[http://www.truthdig.com/report/item/public_banking_in_costa_rica_a_remarkable_little-known_model_20131111 Costa Rica]</ref>

Brown also supported "[[Quantitative easing|QE2]]" - which she described as a necessary and desirable funding of government spending via money printing rather than by the indirect means of issuing of interest-bearing government bonds, which simply allows private bankers to profit from costless money creation.<ref>[http://www.marketoracle.co.uk/Article24443.html QE2 and the Looming Threat of a Crippling Debt Service]</ref><ref>[http://www.marketoracle.co.uk/Article24719.html QE2 and Hyperinflation], Ellen Hodgson Brown</ref>

Many monetary reformers who call on the government to take back the money creation function from debt-supplying private for-profit banks also call for full reserve banking to remove the bank's alleged "embezzlement" and "counterfeiting" abilities.<ref>[http://www.thenewamerican.com/economy/economics/item/14238-obama%E2%80%99s-trillion-dollar-coin-exposes-federal-reserve-scam Obama’s Trillion-Dollar Coin Exposes Federal Reserve Scam], Alex Newman, ''New American''</ref><ref name="marketoracle.co.uk"/><ref>[http://www.monetary.org/ AMI website, calling on full-reserve banking]</ref>

It should be noted that if Austrian claims that [[fractional reserve banking]] produces [[Austrian business cycle theory|business cycles]] is correct, public ownership of banks will not stop periodic economic crises and business cycles from occurring, ''unless'' strong controls and very high reserve ratios are imposed on all banks. Many would consider this "solution" of publicly-owned fractional reserve banks merely perpetuating the problem.

Stephen Zarlenga's AMI organization has strongly criticized Brown's support of fractional reserve banking as perpetuating the very problems she seeks to solve. Jamie Walton, from the AMI, wrote the following review:<ref>[http://www.monetary.org/review-of-ellen-browns-the-web-of-debt/2010/12/ Review of Web of Debt], Jamie Walton</ref>

{{quote|Brown’s plan to takeover (rescue?) the big banks to continue a “fraud” within the safety of government is totally wrong. Placing the “fraud” in government doesn’t make it right, but might make it harder to stop. Does Brown realize that her statements and conclusions are inconsistent, and that what she proposes leads to exactly the same things that she’s claiming to be opposed to?

Experience shows that if the issue of money is unduly affected by commercial incentives, then, over time, “commercial loans” (i.e., debt) will dominate over more direct methods of issue. So we’d be kept in exactly the same position we’re in now: within a totally unnecessary, ever-growing and impossible-to-pay debt trap.

Obviously the sensible action to take is to remove the “fraud” and debt and retain a healthy and competitive banking sector. This is easily done with a law based on the existing provisions in the U.S. Constitution.

But Brown avoids this obvious solution and instead advocates that our government gets into banking.

It seems incredible that Brown is now advocating what she’s described throughout most of the book as fraud, counterfeiting and Ponzi, pyramid or ‘smoke-and-mirrors’ schemes. Why? Perhaps the answer lies in Brown’s apparent confusion and/or fundamental misunderstandings about the nature of money and the role of government in society, and about monetary history and monetary reform.}}

===Left-leaning ideas===
The highly successful "Icelandic Solution" of debt relief for the poor and criminal sanctions against corrupt bankers was implemented by a left-wing government<ref>[http://www.zerohedge.com/news/2013-01-26/only-3-minutes-worth-listening-davos Interview with Iceland's President Olafur Ragnar Grimson]</ref> although some question whether the policies truly reflected left-wing ideas given the constraints on Icelandic policy-making at the time.<ref>[http://reason.com/blog/2012/04/17/why-iceland-presidents-left-wing-critiqu Why Iceland President Left-Wing Critique is Right], ''Reason''</ref>

Some left-leaning [[social democrats]] would also support additional longer-term measures such as ''raising'' minimum wages immediately after a financial crisis (rather than reducing wage rates - which they argue only prolongs the depression through reduced spending), taxing the banking system and the implementation of strongly redistributive income and [[land tax]]es to ensure the financially dispossessed are "replenished" with income. They would also support a [[social security]] [[safety net]] involving the provision of unemployment benefits and government-supplied free medical care, education and other essential services and [[public goods]].<ref>[http://www.youtube.com/watch?v=g4yVhxDTom0 Steve Keen interview with Max Keiser]</ref> It is to be expected however that this coercive regulatory regime would result in the systematic destruction of the entrepreneurial class as profits are squeezed by rising costs. In addition, without the issuance of debt-free [[fiat currency]] the result of these programs would be the persistent, exponential, accumulation of [[government debt]], financed by the [[private banking]] system by the issuance of [[government bonds]]. If not properly managed, this could result in a progressively higher tax burden and may result in higher [[interest rates]] in the long term, as financiers require higher [[interest rates]] to lend to the increasingly indebted central government. Without the issuance of [[debt-free money]] these policies can be self-defeating, with the net result simply being that a larger stream of guaranteed income goes to the [[private bank]]ing system via the issuance of interest-bearing [[government bonds]] (which are purchased by the [[private banks]] "out of nothing" through [[fractional reserve banking]] techniques). This [[government debt]] must then be financed in perpetuity by compulsorily acquired [[tax]]es from future generations.

It could be argued that the early success of extreme so-called "right-wing" (but socialist government-guided) [[fascism]] in [[Nazi Germany]] and [[Italy]] in the period after [[World War I]] was a response to the economic chaos created by the debt-based monetary system in early 20th century [[Europe]]. Some of the economic policies introduced by [[Hitler]] and [[Mussolini]] were in direct response to the economic collapse and social [[anarchy]] caused by soaring government and personal debt levels in both countries in the post-[[Versailles Treaty]] era, and (indirectly) arose from the writings of [[Silvio Gesell]] and others on the nature of the problems associated with a debt-based [[monetary system]]. Although many [[historian]]s justifiably criticize many of the non-economic policies of the [[fascist]] governments of [[Germany]] and [[Italy]] during this period, the [[economics of fascism]] seemed to provide a degree of [[prosperity]] to the populace, and arguably achieved the government's stated objective of restoring economic and social order during the pre-[[World War II]] era.<ref>[http://www.webofdebt.com/articles/bankrupt-germany.php How a Bankrupt Germany Solved its Economic Problems], Ellen Hodgson Brown</ref> These economic policies and their results are the subject of vigorous debate even today.<ref name="North_National_Great">Gary North. [http://www.garynorth.com/public/7009.cfm "Historical Error #27: Hitler's National Socialist Economic Policies Ended the Great Depression in Germany."], ''GaryNorth.Com''. Referenced 2011-02-24.</ref> (See also [[Inflation in Nazi Germany]].)

Similarly it could be argued that [[socialism]] and [[communism]] were movements inspired by the inequalities caused by the intense (and in [[Karl Marx]]'s view unsustainable) concentrations of monetary wealth, power and influence inherent in the practice of [[fractional reserve banking]] in a [[laissez-faire]], [[monopoly]] [[capitalist]] environment (particularly when [[fractional reserve banking]] is combined with a [[gold standard]] or other [[hard currency]] [[monetary system]]).<ref>[http://www.zerohedge.com/news/2013-11-07/marc-faber-warns-karl-marx-was-right Karl Marx Was Right], Marc Faber</ref><ref>[http://www.nakedcapitalism.com/2009/02/steve-keen-roving-cavaliers-of-credit.html ''Roving Cavaliers of Credit'', Steve Keen, with commentary from Yves Smith at Naked Capitalism]</ref>

The [[communist]]/[[socialist]] solution to the problem of [[fractional reserve banking]] is simple: re-enfranchising workers through widespread organization and unionism, complete removal (and if necessary, violent non-democratic removal) of the allegedly "parasitic" financial, capitalist and upper classes, wholesale repudiation of [[government debt]] resulting in complete debt [[default]]; forced [[expropriation]] of [[land]] and wealth from the [[upper classes]] to the dispossessed and needy [[working classes]]; [[nationalization]] of the [[private banks]] (which has required armed [[coup]]s by the [[military]] in some past [[revolution]]s); and the return of the banking function from a dominant, speculative to a subordinate, administrative institution, where the banking system is reduced to a subservient arm of the centralized [[Leviathan]].<ref>[http://www.zerohedge.com/news/2013-11-07/marc-faber-warns-karl-marx-was-right Karl Marx Was Right], Marc Faber</ref> In this system, government-owned banks are directed by government policy; often provide different kinds of loans to different industry sectors at different interest rates depending on the perceived "needs" of the economy and the community; normally have a significant proportion of [[non-performing loan]]s due to weak or non-existent [[bankruptcy]] laws; and periodically "forgive" failed debts in recognition of the impossibility of some businesses in paying this debt money back. In addition, individuals are prohibited from possessing large property holdings, in excess of their individual needs.

It is to be expected that the [[profitability]] of the government-owned banking system would be more stable - but dramatically lower - than that in a debt-based [[capitalist]] economy. It is also to be expected that a significantly higher misallocation of resources could occur in this system, where lending decisions are "infected" by political considerations and are not made on the basis of expected [[return on investment]]. The risk of [[corruption]] in the banking system is also expected to be higher where there is no separation between the political and monetary systems in an economy. Market-oriented [[monetary reform]]ers and [[neo-classical]] economists therefore do not support [[nationalization]] of the [[private banking]] system.

It should be noted that partial [[nationalization]] of the [[private bank]]ing system would only be temporary, as any remaining [[private banks]] could still engage in unlimited [[fractional reserve banking]] and facilitate the eventual acquisition and control of any strategic assets in a partially socialized economic system. It is to be expected that in the absence of complete [[nationalization]] of the banking system, the [[private bank]]ing system would eventually dominate the financial system in any nominally [[socialist]] society.

==Corporatism, Crony Capitalism and Confiscation==
Assuming current trends continue, "Corporatism",<ref>[http://www.lewrockwell.com/2010/04/ron-paul/dont-call-obama-a-socialist/ Corporatism], Lew Rockwell</ref> "Rigged Market Capitalism",<ref>[http://maxkeiser.com/tag/rigged-market-capitalism/ Rigged Market Capitalism]</ref> or so-called "Crony Capitalism"<ref>[http://mises.org/daily/6540/The-American-Economy-is-Not-a-FreeMarket-Economy Crony Capitalism in America]</ref><ref>[http://www.zerohedge.com/news/2013-02-10/guest-post-note-fed-giving-banks-free-money-wont-make-us-hire-more-workers Note To Fed]</ref> will continue.<ref>[http://www.youtube.com/watch?v=zbQq33iTsrw Rigged bank rates]</ref> This means superficial respect for property rights but periodic confiscation when deemed necessary by a government-banker cabal who consider themselves above [[natural law]].<ref>[http://www.zerohedge.com/news/2013-09-18/why-obama-allowed-bailouts-without-indictments Why Obama Allowed Bailouts]</ref> This implies ongoing "immunity" for market manipulating banks on the basis that they are "too big to jail",<ref>[http://moneymorning.com/2012/12/28/too-big-to-jail-its-a-dark-day-for-the-rule-of-law/ Too Big To Jail]</ref><ref>[http://www.rollingstone.com/politics/news/gangster-bankers-too-big-to-jail-20130214 Gangser Bankers: Too Big to Jail], Matt Taibbi. Extract: 'At HSBC, the bank did more than avert its eyes to a few shady transactions. It repeatedly defied government orders as it made a conscious, years-long effort to completely stop discriminating between illegitimate and legitimate money. And when it somehow talked the U.S. government into crafting a settlement over these offenses with the lunatic aim of preserving the bank's license, it succeeded, finally, in making crime mainstream. UBS, meanwhile, was a similarly elemental case, in which the offenses didn't just violate the letter of the law – they threatened the integrity of the competitive system. If you're going to let hundreds of boozed-up bankers spend every morning sending goofball e-mails to each other, giving each other superhero nicknames while they rigged the cost of money (spelling-challenged UBS traders dubbed themselves, among other things, "captain caos," the "three muscateers" and "Superman"), you might as well give up on capitalism entirely and just declare the 16 biggest banks in the world the International Bureau of Prices. Thus, in the space of just a few weeks, regulators in Britain and America teamed up to declare near-total surrender to both crime and monopoly. This was more than a couple of cases of letting rich guys walk. These were major policy decisions that will reverberate for the next generation. Even worse than the actual settlements was the explanation Breuer offered for them. "In the world today of large institutions, where much of the financial world is based on confidence," he said, "a right resolution is to ensure that counter-parties don't flee an institution, that jobs are not lost, that there's not some world economic event that's disproportionate to the resolution we want." In other words, Breuer is saying the banks have us by the balls, that the social cost of putting their executives in jail might end up being larger than the cost of letting them get away with, well, anything. This is bullshit, and exactly the opposite of the truth, but it's what our current government believes. From JonBenet to O.J. to Robert Blake, Americans have long understood that the rich get good lawyers and get off, while the poor suck eggs and do time. But this is something different. This is the government admitting to being afraid to prosecute the very powerful – something it never did even in the heydays of Al Capone or Pablo Escobar, something it didn't do even with Richard Nixon. And when you admit that some people are too important to prosecute, it's just a few short steps to the obvious corollary – that everybody else is unimportant enough to jail. An arrestable class and an unarrestable class. We always suspected it, now it's admitted.'</ref> and the continued collusion of central banks with private banks to manipulate an increasing number of financial and commodity markets in a futile effort to control capitalism for their own survival, eventually destroying any semblance of functioning capitalism resulting in an increasingly volatile financial system.<ref>[http://www.zerohedge.com/news/2013-04-26/illuminati-were-amateurs-matt-taibbi-explains-how-everything-rigged The Illuminati Were Amateurs], Matt Taibbi. Extract: "Conspiracy theorists of the world, believers in the hidden hands of the Rothschilds and the Masons and the Illuminati, we skeptics owe you an apology. You were right. The players may be a little different, but your basic premise is correct: The world is a rigged game. We found this out in recent months, when a series of related corruption stories spilled out of the financial sector, suggesting the world's largest banks may be fixing the prices of, well, just about everything."</ref><ref>[http://www.youtube.com/watch?v=zbQq33iTsrw Rigged bank rates]</ref> Some believe we have already reached this point where world financial markets are completely artificial and prices in many markets no longer reflect reality.<ref>[http://www.youtube.com/watch?v=zbQq33iTsrw Rigged bank rates]</ref><ref>[http://www.gata.org/node/7096 Fed's blueprint for market manipulation]</ref> Even former Fed officials now admit QE simply involves newly created money being gifted to large Wall Street banks at the expense of the general population.<ref>[http://www.zerohedge.com/news/2013-11-12/former-fed-quantitative-easer-confesses-aplogizes-i-can-only-say-im-sorry-America I am sorry America]. Quote: 'In its almost 100-year history, the Fed had never bought one mortgage bond. Now my program was buying so many each day through active, unscripted trading that we constantly risked driving bond prices too high and crashing global confidence in key financial markets. We were working feverishly to preserve the impression that the Fed knew what it was doing... Trading for the first round of QE ended on March 31, 2010. The final results confirmed that, while there had been only trivial relief for Main Street, the U.S. central bank's bond purchases had been an absolute coup for Wall Street. The banks hadn't just benefited from the lower cost of making loans. They'd also enjoyed huge capital gains on the rising values of their securities holdings and fat commissions from brokering most of the Fed's QE transactions. Wall Street had experienced its most profitable year ever in 2009, and 2010 was starting off in much the same way. You'd think the Fed would have finally stopped to question the wisdom of QE. Think again. Only a few months later—after a 14% drop in the U.S. stock market and renewed weakening in the banking sector—the Fed announced a new round of bond buying: QE2. Germany's finance minister, Wolfgang Schäuble, immediately called the decision "clueless." That was when I realized the Fed had lost any remaining ability to think independently from Wall Street. Demoralized, I returned to the private sector. Where are we today? The Fed keeps buying roughly $85 billion in bonds a month, chronically delaying so much as a minor QE taper. Over five years, its bond purchases have come to more than $4 trillion. Amazingly, in a supposedly free-market nation, QE has become the largest financial-markets intervention by any government in world history.'</ref> Ongoing purchases of government bonds by central banks continue every month, keeping interest rates artificially low and allowing government spending to continue to expand, along with a volatile heavily indebted private economy.<ref>[http://www.youtube.com/watch?v=G1l7DY8kdz0 The Fed Unspun]</ref> If these "emergency" QE measures continue indefinitely this will eventually result in indefinite depression as markets are manipulated beyond the control even of the central banks, prohibiting market "clearing" and prohibiting the reallocation of resources away from the government and financial sectors.<ref>[http://prudentbear.com/index.php/guestcommentaryview?art_id=10742 Bernanke's Balance Sheet Ensures Disaster], Michael Pento</ref><ref>[http://www.zerohedge.com/news/2013-01-26/only-3-minutes-worth-listening-davos Interview with Iceland's President Olafur Ragnar Grimson]</ref><ref>[http://www.zerohedge.com/news/2013-02-06/guest-post-all-well All Is Well], Jim Quinn</ref><ref>[http://www.youtube.com/watch?v=zbQq33iTsrw Rigged bank rates]</ref> Recent events in Cyprus and Greece are an indication of what will happen in other countries should the current system continue - periodic financial crises and bank runs from capital controls on marginal economies resulting in impoverishment of the general populace.<ref>[http://www.marketoracle.co.uk/Article39809.html Greece vs Iceland]</ref><ref>[http://www.zerohedge.com/news/2013-03-22/ecb-set-fair-cypriot-standard-living-capital-controls Capital Controls]</ref> Without debt relief, "following the rules" of debt will mean that the government will have to steal simply to pay back creditors.<ref>[http://www.marketoracle.co.uk/Article39732.html Cyprus Wealth Confiscation Scheme]</ref> Ultimately, with a compliant populace, bankers and governments will periodically, without warning, "steal", "tax" or otherwise confiscate deposits, savings and wealth to keep the financial system alive, whilst continuing to try grow the money supply through fractional reserve banking.<ref>[http://www.zerohedge.com/news/2013-03-22/ecb-set-fair-cypriot-standard-living-capital-controls Capital Controls]</ref>
Without reform or revolution, this perverted Keynesian<ref>[http://mises.org/journals/fm/January2013.pdf Two Sides of the Same Debased Coin], Hunter Lewis</ref> "upside down" combination of "socialism for the rich and capitalism for the poor" will inevitably result in chronic cascading "supply" crises in commodity markets as price signals no longer "work" due to market manipulation and price "smoothing" stifling price rises that must occur for production of essential commodities to remain profitable, thereby ultimately resulting in actual supply and demand mismatches in many essential commodity markets (such as the gold and silver markets).<ref>[http://www.marketoracle.co.uk/Article38893.html Shock Year 2013]</ref><ref>[http://www.zerohedge.com/news/2013-02-09/guest-post-us-economy-now-dangerously-detached-reality US Economy Detached From Reality]</ref> This will ultimately produce a tiny (but massively wealthy) speculative banker class,<ref>[http://www.zerohedge.com/news/2013-04-03/david-stockman-keynesian-endgame The Keynesian Endgame], David Stockman</ref><ref>[http://www.zerohedge.com/news/2013-02-06/guest-post-all-well All Is Well], Jim Quinn</ref> a bloated and ineffective government sector, a private sector that mainly services lucrative government contracts (or is otherwise starved of capital and funding) and the complete destruction of the middle class, resulting in a steadily increasing disenfranchised, desperate, intergenerational underclass.<ref>[http://www.zerohedge.com/news/2013-06-17/rotting-decaying-and-bankrupt-%E2%80%93-if-you-want-see-future-america-just-look-Detroit America's Future is Detroit]</ref><ref>[http://www.zerohedge.com/news/2013-02-06/guest-post-all-well All Is Well], Jim Quinn</ref><ref>[http://www.globalresearch.ca/western-civilization-and-the-economic-crisis-the-impoverishment-of-the-middle-class/18386 Western Civilization and the Economic Crisis]</ref><ref>[http://www.youtube.com/watch?v=DVxyGxEcMqQ Max Keiser on the UK Economy]</ref><ref>[http://mises.org/journals/fm/January2013.pdf Two Sides of the Same Debased Coin], Hunter Lewis</ref><ref>[http://www.youtube.com/watch?v=zbQq33iTsrw Rigged bank rates]</ref><ref>[http://www.zerohedge.com/news/2013-04-03/david-stockman-keynesian-endgame The Keynesian Endgame], David Stockman</ref><ref>[http://www.marketoracle.co.uk/Article39449.html An Orwellian America], Gordon T Long</ref>

David Stockman has the following comments in relation to the current monetary system:<ref>[http://mises.org/daily/6397/The-Keynesian-Endgame The Keynesian Endgame]</ref>

<blockquote>Accordingly, the central banking branch of the state remains hostage to Wall Street speculators who threaten a hissy fit sell-off unless they are juiced again and again. Monetary policy has thus become an engine of reverse Robin Hood redistribution; it flails about implementing quasi-Keynesian demand–pumping theories that punish Main Street savers, workers, and businessmen while creating endless opportunities, as shown below, for speculative gain in the Wall Street casino.

At the same time, Keynesian economists of both parties urged prompt fiscal action, and the elected politicians obligingly piled on with budget-busting tax cuts and spending initiatives. The United States thus became fiscally ungovernable. Washington has been afraid to disturb a purported economic recovery that is not real or sustainable, and therefore has continued to borrow and spend to keep the macroeconomic “prints” inching upward. In the long run this will bury the nation in debt, but in the near term it has been sufficient to keep the stock averages rising and the harvest of speculative winnings flowing to the top 1 percent.

The breakdown of sound money has now finally generated a cruel endgame. The fiscal and central banking branches of the state have endlessly bludgeoned the free market, eviscerating its capacity to generate wealth and growth. This growing economic failure, in turn, generates political demands for state action to stimulate recovery and jobs.

But the machinery of the state has been hijacked by the various Keynesian doctrines of demand stimulus, tax cutting, and money printing. These are all variations of buy now and pay later—a dangerous maneuver when the state has run out of balance sheet runway in both its fiscal and monetary branches. Nevertheless, these futile stimulus actions are demanded and promoted by the crony capitalist lobbies which slipstream on whatever dispensations as can be mustered. At the end of the day, the state labors mightily, yet only produces recovery for the 1 percent.</blockquote>

Paul Krugman has criticized David Stockman's analysis of rising debt levels.<ref>[http://krugman.blogs.nytimes.com/2013/04/03/debt-and-david-stockman/ Debt and David Stockman]</ref> Others have criticized Paul Krugman's analysis.<ref>[http://lewrockwell.com/anderson/anderson362.html Should Government Try to Extend Booms Indefinitely?]</ref> Paul Krugman's argument (essentially) is that debt does not matter because we (mostly) owe it to ourselves, but he never advocates repudiation or cancellation of the debt on the same basis.

==Status under current systems==
Whatever their political leanings, nearly all [[monetary reform]]ers agree that the current financial and economic system imposed on the populace by governments worldwide, involving coercive legal tender laws,<ref>[http://lewrockwell.com/paul/paul766.html Legalize Currency Competition], Ron Paul</ref> the perpetuation of government-protected private banks (organizations legally permitted to engage in unlimited and inherently speculative fractional-reserve banking activities during boom times, with recourse to monopoly central banks - and in some cases corrupt governments<ref>[http://www.prudentbear.com/index.php/thebearslairview?art_id=10513 The Evils of Crony Capitalism], Martin Hutchinson</ref><ref>[http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100008812/irelands-debt-servitude/ Ireland's Debt Servitude], Ambrose Evans-Pritchard, UK Telegraph</ref> - to provide bail outs of fiat money during downturns), "deregulated" labor markets (which have the effect of increasing the marketization and commodification of human activity), strictly enforced bankruptcy laws (which permit the periodic transfer of assets from failed bankrupt investors caught at the end of "Ponzi-scheme" cycles to the private banks and their associates) and personal income tax (which, combined with periodic economic collapses, dispossesses the majority of the populace from their accumulated income and wealth and transfers this wealth to the owners of illicit government bonds) amounts to an inherently unstable, unjust and dysfunctional financial system resulting in environmentally damaging over-consumption and massive worldwide [[malinvestment]]s,<ref>[http://www.mises.org/daily/6578/Central-Banks-The-True-Centers-of-Political-Power Central Banks]</ref> the systematic and irredeemable destruction of fertile arable land,<ref>[http://www.huffingtonpost.co.uk/2011/09/27/natural-resources-being-e_n_982576.html Natural Resources Being Exhausted]</ref> and the government-sponsored (and ultimately unsustainable) oppression of the indebted, impoverished and economically enslaved majority.<ref>[http://www.zerohedge.com/news/2013-02-06/guest-post-all-well All Is Well], Jim Quinn</ref><ref>[http://www.thenewamerican.com/economy/economics/item/14238-obama%E2%80%99s-trillion-dollar-coin-exposes-federal-reserve-scam Obama’s Trillion-Dollar Coin Exposes Federal Reserve Scam], Alex Newman, ''New American''</ref><ref>[http://mises.org/daily/4893 ''The Ethics of Money Production''], Jorg Guido Hulsmann</ref><ref>[http://www.youtube.com/watch?v=QIBFvikcl7g Stacy Herbert and Max Keiser: Flaming Banks] Max Keiser Quote: "Well, ''it's slavery''. You know, they had slavery, then they outlawed slavery but in its place were the Jim Crow laws: 'Coloreds Only. Whites Only.' Then the banks got involved and they have ''financial'' Jim Crow laws. If you're black and living in the ghetto, you are charged 40, 50, 60% to borrow money. If you're white and you work on Wall Street, you're charged ''negative'' 5% to borrow money. That's a ''financial'' Jim Crow law that goes down color lines. Now the big corporations who realize America's becoming a new ''plantation of slaves'' - they're saying, 'Forget it! We don't even make a pretense that there's a "middle class". Here's a product for those living on the plantation. And here's the product for the man livin' in the Big House!'"</ref><ref>[http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/3/25_Sinclair_-_Cyprus%2C_Gold%2C_Russia_%26_A_New_Monetary_System.html Jim Sinclair Interview]. Quote: "He [Paul Craig Roberts] spoke about the banks moving to enslave humanity, and he said the Cypriots had to do whatever it took to put a stop to this."</ref><ref>[http://www.marketoracle.co.uk/Article40103.html Americans Loving Their Servitude], James Quinn</ref>

==See also==
* [[Austrian Business Cycle Theory]]
* [[Central bank]]
* [[Monetary reform]]
* [[Murray Rothbard]]
* [[Ron Paul]]

==Notes==
{{reflist|4}}

==Links==
* [http://www.thefreemanonline.org/features/taking-money-back-part-i/ Taking Money Back: Part I] by [[Murray Rothbard|Murray N. Rothbard]], September 1995
* [http://www.thefreemanonline.org/features/fractional-reserve-banking-part-ii/ Fractional Reserve Banking: Part II] by Murray N. Rothbard, October 1995 (reprinted at [[LRC]] [http://www.lewrockwell.com/rothbard/rothbard239.html here])

*[http://econpapers.repec.org/paper/wpawuwpma/0203005.htm Fractional Reserve Banking as Economic Parasitism]
*[http://www.prosperityuk.com/prosperity/links/links.html Monetary Reform websites]
*[http://www.relfe.com/plus_5_.html I want the Earth Plus 5%]
*[http://www.youtube.com/watch?v=JUFxsZF5E48&list=LLG5bLlG3NQ8sHur0Oco-CmQ&feature=mh_lolz How Our Monetary System Works and Fails]
*[http://www.youtube.com/watch?v=jqvKjsIxT_8 Money As Debt (videoplay animation)]
*[http://www.youtube.com/watch?v=swkq2E8mswI&feature=like-suggest&list=UL The Secret of Oz (documentary video)]
*[http://dailyreckoning.com/ Daily Reckoning]
*[http://jsmineset.com/ Jim Sinclair's MineSet]
*[http://www.lewrockwell.com/ LewRockwell.com]
*[http://www.marketoracle.co.uk/ Market Oracle]
*[http://maxkeiser.com/ Max Keiser]
*[http://globaleconomicanalysis.blogspot.com/ MISH]
*[http://www.prudentbear.com/ PrudentBear.com]
*[http://www.youtube.com/watch?v=Bx5Sc3vWefE 12 Year Old Victoria Grant's Speech]
*[http://www.webofdebt.com/ Web of Debt]
*[http://www.zerohedge.com/ Zero Hedge]

{{DEFAULTSORT:Criticism Of Fractional-Reserve Banking}}
[[Category:Argumentation]]
[[Category:Money]]