LETTER

The cupboard is always bare!

 

I am no economist, but I was intrigued by Mr Kazdan's letter concerning the "creation" of money.

Since the Nixon presidency in 1971 ended America's use of the Gold Standard, after more than 100 years, the world soon followed and switched to Fiat money. As I understand the impact of Fiat money, it means that paper currency is no longer backed up by gold reserves but by intrinsically valueless money, used as money because of government decree. When modern banking gleefully abandoned the Gold Standard and adopted the concept of Fiat money, they used it to generate huge profits (see 1980's 15%+ interest rates) on "created" Fiat money-lending, ostensibly backed up by the banking institutions. This is what brought banking to the precipice of failure in 2008: "creating" Fiat money for ridiculous mortgage loans that could not be monetarily backed up when they failed.

Mr Kazdan is correct that when governments decree the "creation" of Fiat money to finance some project, it leaves little room for banks to "create" this Fiat money for such projects. So when governments plead that "the cupboard is bare" they open the door to banks to "create" interest-generating Fiat money.

What this seems to point to is that, when "creating" this Fiat money, the cupboard is always bare. Whether it is a government or a bank "creating" Fiat money, it is always with a magician’s slight of hand, reaching into an apparently bare cupboard and snatching out some amount of "created" Fiat money that perfectly serves their purpose.

If the lowly Canadian public could get their hands on one of these bare cupboards, our magically "created" Fiat moneyed utopia would soon load its heavy price upon our not-too-big-to-fail money-lusting heads. Alas, we are left to put our faith in government and banks to "create" Fiat money with their impeccable ethics and honesty. We will likely all agree, I fear, that this is less likely than utopia. This leaves us all to only watch in wonder as the empty cupboard continues to provide us with the "creation" of Fiat money which we will be responsible for as government taxpayers or bank loan holders -- and, in some cases, both.

Ron Temchuk,

Aylmer