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Saturday, February 19, 2011

Economic Fiction

What is money?  Seems like a straightforward question, doesn’t it?  It’s not.  The only money the U.S. government actually creates is coins.  The Federal Reserve prints bills.  They are not the government, but rather a corporation consisting of heads of large multi-national banks.  If ever there were a case of the fox guarding the hen house – this is it.  So, the source of creation notwithstanding, what does all this add up to?  Answer: 3% of all of the “money” that is credited as wealth by all the holders of wealth in the United States (individuals and corporations).

Where is the other 97%, you ask?  It’s data.  That’s right; it doesn’t really exist except in computers.  If all the computers were to shut down, 97% of our “money” would spontaneously disappear.  Where did all this “money” come from?  How do you create so much wealth out of thin air?  The answer is simple: loans.  When banks make a loan, they don’t put a freeze on the funds in your savings account.  They just create new money out of thin air.  Of course, most of it is just in the computer. 

You spend your new money using your checking account or credit card and this causes computer records to reflect the transfer of the “money” from one bank to another.  But, unless you withdraw money in the form of cash, it’s all part of the 97% fiction.

The great thing about the 97% fiction is: as long as everyone believes it is based on a true story – it is a true story!  Our problem is that it is getting increasingly difficult to believe the story.  Once enough suspicion arises, the story starts to fall apart.  This can only result in tragedy.  So, our leaders need to keep selling us the validity of the story.

This is one more example of how are lives are marching inexorably towards complete virtualization.  Our economic lives increasingly live in the net.  Our social lives are increasingly lived in the net.  For a growing number of us, our work lives live in the computer if not the net.  Video conferencing is a way to project yourself digitally to another place.  Most new laptops have a built-in camera for this purpose.  Do you see the pattern?  Our digital lives are slowly taking over as what matters in the world becomes increasingly online.

We will continue to find better ways to plug ourselves in.  The digital world will continue to become a richer, better place to be, while we continue to degrade the physical world around us.  Eventually, the 97% fiction becomes the stronger reality – the better reality.  Now, THAT is stranger than fiction!
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