simon12
Landlord.
As in this old thread https://www.thehomebrewforum.co.uk/threads/money-what-it-is-and-where-it-comes-from.73668/ money is created by and backed by debt.
Brief History focusing mainly on the UK but its a similar story round the world.
Since the Romans went people used silver by weight as a currency and around the 10th century kings started minting coins to specific weights. Pound sterling got its name from a pound weight of sterling silver. Currencies then expanded to use gold and copper as well as silver all to the correct weight. Coins where frequently made with less of the metal than they should be mainly to fund wars on occasion soldiers were paid in tin coins no one would accept. Then came paper money banks went from places people paid to store there gold to places that paid you interest to store your gold as they could produce IOUs for more of the gold than they had as people rarely swapped the IOUs for gold. The government then created the bank of England so between them and the banks they could control the money supply and interest rates, despite this money was still fixed to a value of gold despite not being fully backed by. 2 world wars later and most of Europe’s gold had crossed the Atlantic making Europe's main currencies unlink-able to gold and very unstable. Then came the bretton woods agreement when most currencies became fixed to the dollar at a time the dollar was fixed to gold at 1/35th of an ounce and the central banks where given dollar reserves to make sure they could back there currencies making the dollar the worlds reserve currency. The rates currencies were fixed to the dollar were adjusted occasionally but generally all major currencies are still fixed to each other and in a secondary way fixed to gold. This all ended in 1971 when partly to pay for the Vietnam war the dollar abandoned any link to gold and all other currencies abandoned any link to the dollar. So from here all currencies are only worth what people think they are with no fixed link to anything at all which makes it far easier for the banks to pump new money into the economy.
Want does it mean for the economy.
It has resulted in an economy that needs continued growth and there are only 2 ways for the economy to grow and thats pouring more money in or making that money move faster, the low interest rates we have do both as noone saves money with near zero interest and its cheap to borrow forcing more new money into the economy. This has had a direct affect on housing prices (as well as supply and demand) as the boomer generation towards the end of there working lives saw the only place they could get a return on there lives saving was in property.
Due to this and globalisation the money makers are no longer involved in making anything people need or providing services people need but theres now a huge industry in moving this endless supply of money around.
It has created constant inflation which is really deflation of all currencies (and partly oil prices changing). If the money supply was fixed we would have negative inflation as more goods would come on the market all the time with only a limited supply of money to pay for them, also the government/BOE would not be able to set interest rates as it would be a supply and demand lending system so the more savers the lower interest rates and the more borrowers the higher interest rates.
So we are now in a situation where both the government and the public have huge dept. but we need more borrowing not just to pay for services but also just to keep the economy growing (and to lower the value of the £ to make the dept more affordable). In my opinion this is not part of a boom bust cycle and we are in totally new territory with the entire western world and China that we are in so much debt but the only solution seems to be more debt as noone will ever get in power by cutting significant spending.
It is the reason bitcoin and other crypto currencies exist as they are only printed to a set algorithum but is the £ only has value because people think it does bitcoin never had anything backing it. It would also be fair to say even physical gold has an inflated value above its usefulness and rarety.
Notes
Much of the issues stemming from this get blamed on capitalism which its the opposite of its purely the unholy alliance of the government, banks and the bank of England and totally against the basic concepts of capitalism.
This is my own thoughts with the basic gist of whats going on and I don't understand it myself as much as this may suggest. Its not been the result of any political movement or ideology and has just been how the world has gone and it would be impossible to find blame on any one or organisation as far as I can tell. I would have never written this if the previous post on money didn't get so much attention and I could carry on writing pages more i'm sure.
Brief History focusing mainly on the UK but its a similar story round the world.
Since the Romans went people used silver by weight as a currency and around the 10th century kings started minting coins to specific weights. Pound sterling got its name from a pound weight of sterling silver. Currencies then expanded to use gold and copper as well as silver all to the correct weight. Coins where frequently made with less of the metal than they should be mainly to fund wars on occasion soldiers were paid in tin coins no one would accept. Then came paper money banks went from places people paid to store there gold to places that paid you interest to store your gold as they could produce IOUs for more of the gold than they had as people rarely swapped the IOUs for gold. The government then created the bank of England so between them and the banks they could control the money supply and interest rates, despite this money was still fixed to a value of gold despite not being fully backed by. 2 world wars later and most of Europe’s gold had crossed the Atlantic making Europe's main currencies unlink-able to gold and very unstable. Then came the bretton woods agreement when most currencies became fixed to the dollar at a time the dollar was fixed to gold at 1/35th of an ounce and the central banks where given dollar reserves to make sure they could back there currencies making the dollar the worlds reserve currency. The rates currencies were fixed to the dollar were adjusted occasionally but generally all major currencies are still fixed to each other and in a secondary way fixed to gold. This all ended in 1971 when partly to pay for the Vietnam war the dollar abandoned any link to gold and all other currencies abandoned any link to the dollar. So from here all currencies are only worth what people think they are with no fixed link to anything at all which makes it far easier for the banks to pump new money into the economy.
Want does it mean for the economy.
It has resulted in an economy that needs continued growth and there are only 2 ways for the economy to grow and thats pouring more money in or making that money move faster, the low interest rates we have do both as noone saves money with near zero interest and its cheap to borrow forcing more new money into the economy. This has had a direct affect on housing prices (as well as supply and demand) as the boomer generation towards the end of there working lives saw the only place they could get a return on there lives saving was in property.
Due to this and globalisation the money makers are no longer involved in making anything people need or providing services people need but theres now a huge industry in moving this endless supply of money around.
It has created constant inflation which is really deflation of all currencies (and partly oil prices changing). If the money supply was fixed we would have negative inflation as more goods would come on the market all the time with only a limited supply of money to pay for them, also the government/BOE would not be able to set interest rates as it would be a supply and demand lending system so the more savers the lower interest rates and the more borrowers the higher interest rates.
So we are now in a situation where both the government and the public have huge dept. but we need more borrowing not just to pay for services but also just to keep the economy growing (and to lower the value of the £ to make the dept more affordable). In my opinion this is not part of a boom bust cycle and we are in totally new territory with the entire western world and China that we are in so much debt but the only solution seems to be more debt as noone will ever get in power by cutting significant spending.
It is the reason bitcoin and other crypto currencies exist as they are only printed to a set algorithum but is the £ only has value because people think it does bitcoin never had anything backing it. It would also be fair to say even physical gold has an inflated value above its usefulness and rarety.
Notes
Much of the issues stemming from this get blamed on capitalism which its the opposite of its purely the unholy alliance of the government, banks and the bank of England and totally against the basic concepts of capitalism.
This is my own thoughts with the basic gist of whats going on and I don't understand it myself as much as this may suggest. Its not been the result of any political movement or ideology and has just been how the world has gone and it would be impossible to find blame on any one or organisation as far as I can tell. I would have never written this if the previous post on money didn't get so much attention and I could carry on writing pages more i'm sure.
