Debt Is Credit
Debt and credit refer to the same thing. Debt views it from the borrower’s standpoint, credit from the lender’s standpoint. Banks loan borrowers nothing but their credit, so the borrower’s debt to the bank is only bank credit.
Money is the most marketable commodity in the market and has no buy/sell spread.
Legal tender is money the law declares is valid for the payment of debt and that must be accepted when offered, unless the payer has contracted for some other specific payment like gold or silver. If you make a contract for “dollars” without further specification, a court today will interpret that as legal tender Federal Reserve notes or other evidence of bank credit money. Federal Law at 31 U.S. Code Section 103 reads, “United States coins and currency (including Federal reserve notes and circulating notes of Federal reserve banks and national banks) are legal tender for all debts, public charges, taxes, and dues. Foreign gold or silver coins are not legal tender for debts.”
Barriers to Circulation
Anything that obstructs silver and gold from being used as money is a barrier to circulation. This might be taxes, regulations, or reporting that raise the cost of using metallic money above zero. Public ignorance of gold and silver money also bars circulation because overcoming lack of knowledge costs time and money. The inconvenience of using gold and silver compared to the convenience of using bank credit money also adds cost to using metals.
The money used in the U.S. and around the world today is fiat money, from the Latin word, fiat. The Bible uses this word to describe God’s creation of the world out of nothing. God said, “Fiat lux”: “Let there be light, and there was light.” Unlike gold and silver, fiat money has no substance but is created by banks or governments out of nothing and forced into circulation at the point of a gun.
Bank Credit Money
Bank or governments can create fiat money. Governments simply print the money and force people to accept it by legal tender laws. Examples are the Continental currency issued by the Articles of Confederation government during the American Revolution, or the “greenbacks” issued by the northern government during the War for Southern Independence. However, today all the fiat money is bank credit money and must be borrowed into existence. This happens when commercial banks make loans or the central bank buys government debt or securities on the open market. An example of fiat bank credit money is a one dollar Federal Reserve note or a bank deposit.
Borrowing Money into Existence
The drawback of borrowing money into existence is that every dollar is born with an interest payment burden. Thus, inflation is built into the system’s nature, because if the money supply is not inflated every year in at least the amount of the interest burden on the newly created money, the debt will collapse for lack of money to pay the interest.
Consider the parable of the cards. Five men are stranded on a desert island. Call one Banker, and the others Industry, Commerce, Government, and Consumer. Boredom on the island tortures the men, so Banker approaches them with an offer: “I have a deck of 52 cards to help you pass the time. In exchange for a lien on all your property, I will loan each of you 13 cards. However, at the end of the hour each of you must repay me 13 cards, plus one card for interest, or I foreclose your stuff.”
Clearly, at the end of the hour, at least one borrower will be unable to pay and will go bankrupt. Why? Because there are only 52 cards, but at the hour’s end they will owe Banker 56 cards. No matter which player or how many lose, Banker wins. So, any system that borrows money into circulation must by its nature continue inflating; if it stops or even slows inflating, the debt cannot be paid.
Borrowing money into circulation also explains how the present monetary system always leads to credit bubbles and depression. Success begets excess. Banks make money by lending, so they lend as much as possible. Easily available new bank credit money artificially lowers interest rates, stimulates borrowing, and fools entrepreneurs into investing in productive capacity the economy really doesn’t want or need—overbuilding. Eventually, that blows up a debt bubble that cannot be paid, so it implodes in bankruptcies and depression.
Discharging Debt Versus Paying Debt
A debt can only be paid or extinguished with money, that is, gold and silver. Under a bank credit fiat money system, borrowers can never pay debt; they can only discharge debt by tendering some other debt to the lender. Thus, the debt continuously grows, dragging down the economy. If you owe someone $100 dollars and give him a $100 bill, you did not pay and extinguish the debt. The lender only discharged the debt conditionally by accepting more debt from you—after all, a $100 Federal Reserve note is the liability or debt of the Federal Reserve. Only gold or silver can extinguish the debt.
Theories of Money
Since Aristotle’s time, there have been two and only two theories of money, barter and social construct. In a barter system like gold and silver, the money itself has substance and value. Under the social construct theory, money has no substance but is whatever society says it is, and “society” always turns out to be whoever profits from issuing the money.
Numeraire refers to the money your mind defaults to—the money presupposed when you value anything. For most people in the United States, this is the U.S. dollar. In Europe, it’s the euro. Our goal is to get people thinking in terms of gold and silver.
The cost of a gold or silver item above its precious metal value is the premium. When spot gold is selling for $1,900 an ounce, a one-ounce coin with a 10% premium would cost $1,900 + (10% x $1,900) = $2,090.
Silver and gold are weighed in troy ounces, which are heavier than the avoirdupois ounces you’re used to in the meat market. One troy ounce = 480 grains = 31.1034 grams while an avoirdupois ounce = 437.5 grains = 28.349 grams. A troy ounce weighs 1.097 avoirdupois ounces, so an avoirdupois ounce = 0.91 troy ounce. A 16 ounce avoirdupois pound equals 14.583 troy ounces. A “ton” or “tonne” of gold or silver equals 1,000 kilograms or 32,150.08 troy ounces.
Continue to Part IV: Why Silver?