Did you ever watch a Perry Mason court drama? If you are of a younger generation than I am, perhaps not… However, you have no doubt seen court dramas of some sort; in particular, you have seen a witness being sworn in with the clerk reciting the famous mantra;
“Do you swear to tell the truth, the whole truth, and nothing but the truth?”… While the witness holds his hand on the Bible?
Of course, the threat of punishment via the law of contemp t of court (invoked for telling lies) is also in force, beyond any possible Divine retribution. In any case, why this trinity… why not simply “Do you swear to tell the truth” ? It’s pretty clear that “and nothing but the truth” is tacked on to disallow the witness telling some truth and some lies… but what about “the whole truth” ?
This is the kicker; does the witness have to say ‘2 + 2 = 4’… or ‘the Sun rises in the east’… both true statements? After all, ‘the whole truth’ means all truth, no? Well, no. The mantra should actually read ‘all pertinent truth’, not ‘the whole truth’… but this would call for judgement on the part of the witness as to what is pertinent.
When we are mislead, the main method used is exactly this; tell some truth, mostly tell only truth… but by no means tell ‘the whole truth’… do not mention facts that are pertinent and essential for a clear understanding.
A great way to spread mistruth is to treat the lie as if it were true… repeat it like it was true beyond any doubt. Repetition is the mother of learning; repeat a lie often enough as if you yourself believe it to be true, and the uninformed will generally buy it, no questions asked. The best defense against being mislead is knowledge. Knowledge demands use of the ‘Trinity of Truth’ test.
One often hears; ‘simply print more Fiat currency, and inflate away the debt’. But does this statement pass the Trinity test? The truth, the whole (pertinent) truth, and nothing but the truth? Far from it; let’s look at the statement in fine detail. ‘Print more Fiat currency’ seems innocuous… but blind belief is lethal.
Is it true that more Fiat can be printed? Sure, without apparent limit. Is there a lie being told along with the truth? No visible lie… But does the statement tell the whole truth, all the truth needed to understand the whole matter of money creation, does it tell all pertinent truth? No way!
Indeed, the statement is repeated as if it were true beyond any doubt… never to be questioned. The uninformed may accept this statement – ‘print more currency’ – but knowledge is power, and we must dig in to discover the facts.
To get at the truth we must understand the process by which Fiat currency is created under our current financial system. I will use the USA as an example.. . after all, they are the biggest ‘printers’ of currency (U.S. Dollars) but the system applies worldwide. Euro, Yen, whatever, all Fiat paper is created in the same devious way.
The US treasury collects taxes and borrows whatever the Government wants to sp end beyond tax income. This borrowing is called the deficit. Deficits accumulated over years are called sovereign debt. Sovereign debt grows as deficits add up year after year.
The question is if the treasury borrows, from whom does it borrow? Now anyone could (theoretically) buy the newly written bond… could lend the government some currency… but the whole truth is that there is not enough currency in circulation to buy the new bond. This is where things get interesting. At the end of the day, the treasury must borrow from the Fed… the Federal Reserve Bank, so called.
To put it as simply and clearly as possible, the government runs a deficit . . . less tax income than spending… and it’s treasury is obliged to write a bond (borrow) to cover deficit spending. The Fed must create (print) new currency to buy the new bond and thus close the loop. Why is there not enough currency in circulation to buy new debt? Why must the Fed create new currency? When the government wants to sell trillions in new bonds at near zero percent interest rates, while technically there may be currency available, in reality new cash must be created.
Note, we are not talking about lending or borrowing currency already in existence; that is what happens if anyone other than the Fe d buys treasury debt. This does not correspond with new currency… only Fed purchases of ‘assets’, normally but not always in the form of treasury bonds. The Fed could and lately has been monetizing other debt paper as well, like Freddie Mac mortgages etc.
The Fed buys debt with newly created Dollars; Dollars from thin air, backed by promises. The Fed could and does do ‘open market operations’; buy treasury debt originally sold to others… with the intent of increasing the Fiat money supply.
For every newly created Dollar, there is corresponding newly purchased debt. Dollars printed by Fed = debt purchased by Fed. Once this is clear, it becomes obvious why the statement ‘print currency’ does not pass the Trinity Test. It is NOT the whole truth. The whole truth is ‘borrow currency into existence’. The Fed and all CB’s print only to cover ‘asset’ purchases.
Friends of Gold often repeat ‘you cannot print Gold’… but does this statement pass the trinity test? No. While it is superficially true that you cannot print Gold, the whole truth would be ‘you cannot borrow Gold into existence’. This statement tells the whole pertinent truth. It passes the Trinity Test. But how often have you heard ‘you cannot borrow Gold into existence’?
I wager this is the first time , whereas the (superficially true) statement ‘you cannot print Gold’ you have probably heard a hundred times. Note that ‘Gold cannot be borrowed into existence’ has dangerous connotations, connotations very pertinent to exposing the whole truth. It implies that unlike Gold, paper currency IS borrowed into existence. On the other hand, ‘you cannot print Gold’ implies that currency can be just printed… not true.
Many ramifications flow from this realization. Gold money can be borrowed; the Classical Gold Standard featured Gold bonds, Gold bills… but Gold borrowing involves legitimate credit, not illicit debt/currency creation ad infinitum. Most important, before Gold money can be borrowed or lent, it must already exist; mined, refined, minted and in circulation.
Another key ramification is that the reverse of ‘Dollars borrowed = Dollars created’ is also true; ‘Treasury debt repaid = Dollar bills disappear’. Whoa, say that again!? Like this; just as the Fed creates Dollars out of ‘thin air’ to buy treasury bonds, so a treasury bond repaid means the Fed must return the corresponding Dollars to ‘thin air’.
The Fed has a balance sheet, just like any other company on Earth… and a balance sheet must by definition balance. If the Fed buys a treasury bond, the bond value goes on the asset side… and the Dollars created to buy the bond go on the liability side. One Trillion Bond = One Trillion Dollar bills. The balance sheet balances.
If the treasury actually repays its trillion Dollar bond (don’t hold your breath) then the asset is gone, and the Fed must remove a trillion Dollars from the liability side by sending a trillion Dollars back into ‘thin air’ else its balance sheet is out of balance by a trillion.
This is true deflation; a major reduction of currency in circulation, a major reduction of the so called ‘money supply’. A trillion Dollars sent back into ‘thin air’. By contrast, since Gold is nobody’s liability and does not appear from thin air, Gold money cannot deflate or disappear (unless you consider grinding up Gold, mixing it with tons of sand and mud, and stuffing the muck back into the ground.) The statement ‘Gold is deflationary’ is a much repeated lie.
So there you have it; you cannot simply print paper money under our system, you can only borrow it into existence. You cannot repay sovereign debt without a parallel reduction of paper currency in circulation. The whole truth is that more new Fiat Dollars must be borrowed into existence every year just to pay interest on existing debt, never mind paying for more new debt.
Just as there is no currency to buy new debt, there is no existing currency to pay interest on old debt; all currency in circulation today was borrowed into existence, thus currency matches the existing debt. More new currency – and corresponding new debt – is needed to pay accrued interest on currency previously created.
Ever more currency must be borrowed into existence, even without deficit spending, or the whole house of cards collapses. A balanced budget, however unlikely, would still demand new currency and new debt to pay interest on the existing mountain of debt; an endless vicious circle.
We started with the statement ‘simply print more Fiat currency, and you inflate away the debt’… and the first part ‘simply print more Fiat currency’ fails the Trinity of Truth test. Under our current system it’s impossible to ‘simply print more Fiat currency’. How about the rest? Can we ‘inflate away the debt’? Well, if each new Dollar created is of necessity accompanied by a newly created Dollars’ worth of debt, this does not seem likely, does it? Any effort to ‘print away’ existing debt will result in ever larger debt. This is the road to bankruptcy.
Source: The Gold Standard Institue (subscribe to the newsletter)