“A reset seems inevitable and possibly imminent. As they say, the market always does what it is supposed to, but not when we expect it.” – G E Christenson
This is a work of fiction with a few similarities to the reality we all know and trust, or … the reality that we think we know.
City A in a Paper World
A financial genius had a plan! He and his offspring implemented the plan over several hundred years.
Charter a bank.
The government authorizes this bank to create and print paper money, backed by gold or silver. (It took surprisingly little in bribes to convince the government leaders that this Bank was a wonderful idea.)
The Bank accepts gold, silver and other valuables as deposits into its vaults, and then lends paper money, backed by those gold and silver deposits, to governments, businesses, politicians, and individuals.
The debtors borrow paper money but are required to repay in gold.
The Bank owners pay themselves huge salaries, become trusted confidents of government leaders, and pillars of the society. Wealth is transferred to the banker class.
The Bank owners also “encourage” politicians to create wars and other costly programs, and to borrow from the Bank to pay for their adventures and excess spending. (Surprisingly little money is required in payoffs from the Bank to the politicians.)
Debts increase, governments buy votes with promises, and the Bank becomes increasingly important in global affairs.
The Bank also agrees to store gold from many other countries for “safe keeping.” The gold is never audited. A few people wonder why it is never audited.
So many debts are incurred by governments, businesses, and individuals that the money is transformed into paper, not gold, nor is it redeemable in gold. Of course, it is still “as good as gold.” Continue reading