Like I said , the mind revolts at the idea that the act of taking out a oan creates money. It does. Paying off a loan puts the fractional reserve system in reverse. Just as the money supply was multiplied by people taking out loans in the boom, money disappears when the loans are paid off in a bust. If the loan is defaulted on, the money stays in circulation, but the bank tries to call in other loans because it's reserves have been impaired. Remember ,it's all a scam, that is why it is difucult to explain how it woeks and how it malfunctions. If it was hones and simple, it would be easy. this is the beauty of it. You gotta be a nerdy freak to wrap your mind around it. And I can assure you that not one banker in a hundred knows how the system works on the macro level, and only one Congressman does. All the banker knows is that if he can keep a hundred dollars on deposit overnight he can lend thousand or perhaps even ten thousand. and if the loans go bad, the Fed or someoneelse will abil him out, but meanwhile he gests to pocket a whole bunch of interest, and even can squeeze the depositor for fees.That is how the fractional reserve system works. It would work the same wether the dollars were paper dollarsor electronic dollars. They are interchangeable.
There is nothing inherently wrong with electronic money.
Lets see why.
Froma libertarian perspective, we support a monetary regime that is voluntary in nature. People individually and collectively working as individuals should b;e free to chose what they want to use as money.
Most people desire to use money that has the following attributes.
It is portable.
It is durable.
It maintains it's value to be exchanged over time, thus it is limited in supply, and it is diffucult to change the total supply.
It is divisible.
Gold and silver have been chosen by most societies over time due to natural characteristics that perform the functions listed.
However other systems have been very successful, especially in instances where gold and silver have been concentrated by force or fraud in few hands.
The English for many years used sticks The sticks were split lengthwise and the king maintained one half of the stick and the remainder was allowed to circulate at a very high value. Each stick half was unique to the other half, thus counterfeiting was impossible, and the sticks were in finite supply, very valuable, and portable. They were notched to be divisible.
but I digress.
Gold and silver coin have many of the properties that people desire for a medium of exchange. But they still are not as convenient as pieces of paper or electronic blips.
There is a wonderful electronic blip version of gold called egold, and another called goldmoney.com. The underlying gold is stored in a vault in a choice of countries. The gold is available for redemtion of trade with other egold subscribers. Just a click away. There is no reason except of course Uncle sams barriers, why tilte to gold in egold's vaults could not be transferred by Visa cards, or used to spit out paper claims on the gold at ATMs. So long as the underlying asset is there, there is nothing wrong with paper or elctronic money.
On the flip side, a gold based system under aregime of goverment control ,can be justas bad as our current system. How you say.
I have a silver coiin that I bought in the old section of tel aviv a few years back. It dates form the roman occupation during the second Macabee revolt. the coin has a hig silver content andthus value in its own right. But the Romans were not content with just the silver value. So they used the silver and minted it into aspecial coin with the image of a Roman umptedump. They then declared the coin with the image to be worth far more than the silver in the coin. If you were caught using any other coin, or just plain silver as money... death. Now at this time the Jews were weak. They didn't have the ability to run a mint. But the Jewish high priests wanted to extract money from the believers, and wanted more than just the roman coins. so they took the roman coins and struck over them a picture of the second tmeple and some other jewish paparhanelia. They then made this the official coin for sacrifices at the Temple. If you wnated to make a sacrifice, you had to buy this coin. I will bring the coin to the next meeting if want to see it.
So the use of force by the state to affect the value of money goes waay back. Over time the romans used less and less silver in the coins and more and more force. The dilution of silver took centuries, and correlated with many declines in Roman culture.
The US removed nearly all the silver in it's coins in one fell swope in 1964.
We were under a gold standard until 1971. The system still had major problems. Since 1864 peple were forced to use US dollars as money. The banks were able to use the fractional reserve system to issue more paper dollars than they had gold in the vaults. Also sometimes the government used fiat powers to increase or decrease the amount of silver that could be used to back up a paper dollar. In other woekds , since 1864, bankers have permitted to issue dollars in larger quantity than the gold they supposedly represented.
In addition, in 1933 the dollar was devalued by fiat to represent only 1 35th as opposed to 1 20th of an ounce. An overnight devaluation of seventy percent. That starved quite a few poor americans, including members of my own family.
Thus, we will continue to suffer from swings between inflation and deflation until we can somehow repeal legal tender laws and institute free market banking. This was a hot topic when Andrew Jackson was elected to eleiminate the SecondNational Bank and Jefferson the First. Now its up to us to kill the Third. We need to get the governemtn out of the money business. It is priority one in limiting it's power.