Counterfeit Dollar

BALTIMORE – when we left you yesterday, we were carrying out exploratory surgery on the Frankenstein-like modern money system. Here is where the going gets tough. So many ugly organs… so much revolting internal plumbing. But let us cut to the heart –  pull it out – and have a closer look.


heartOne heart, freshly pulled out. Mola Ram at your service!

Image credit: Paramount Pictures


At the heart of any economy is money. Money is the measuring stick. It tells us what things are worth, how much we can afford to invest, what is worth doing and what is not.

Money – especially the rate of interest it earns – tells us when to expand and when to contract. It tells us when to work harder and when to ease off. It tells us which direction to go.

Money is not just something you use when you need to buy a pack of cigarettes. Money provides the key information that a free economy needs. Without honest money, we all might as well be a member of Congress or a Fed governor – hopelessly lost and misinformed. Well, in fact, we are.

In 1971, Nixon ended the direct convertibility of the U.S. dollar to gold. The post-1971 dollar looked for all the world like the pre-1971 dollar. But it was an imposter. A fraud. It no longer represented real wealth or real savings.

Instead, it was a counterfeit dollar, based not on wealth that had been created and stored, but on credit, which depended on future production for its value. This was the government’s money, or more precisely, the money of the “Parasitocracy” (for more on how America became a Parasitocracy, see here).


Crime of the Century

It was a little like the difference between a house that you own and one that you have mortgaged 100% of its value. They look the same. They provide the same service – you can live in either one. You have to paint the shutters of the one just as you do the other.


1-Total credit market debtThe greatest credit bubble of all time – we are currently living at its tail end, with central planners around the world desperately credit ever more debt and funny money in a vain attempt to prevent its demise – click to enlarge.


But when push comes to shove, they are very different. And push comes to shove in a credit crisis. Then you can live happily in the one you own. It is your asset. The other, as you will quickly discover, is a liability.

We have charged the Parasitocracy with using the new dollar to rob the rest of us of our real money and our real independence. How much money has been stolen? It is hard to say… maybe $50 trillion since the system was set up.

If we look at the center of the Parasitocracy, Washington, D.C., we see that their houses are worth more than twice the houses of the rest of us – with an average over $500,000.

Their salaries are higher, too – with household incomes twice the national average. And on Wall Street – another important node of the Parasitocracy – the gap is even wider.


The Scandal of Money

Over the weekend, we listened to a talk by author and economist George Gilder at Freedom Fest in Las Vegas. He is a genius. We regretted having made fun of him back in 1999.

Back then he had been carried aloft by excessive enthusiasm for the dot-com revolution. His head in the cosmosphere, he seemed a bit moonstruck. But now his feet are back on the ground. And he has done us a great service, helping us to connect even more dots.


GilderThe older, wiser and less moonstruck George Gilder. Back in the days of the dotcom bubble, we had a debate with him on Silicon Investor about the policies of the Greenspan Fed and the technology bubble they had wrought. At the time he was still “moonstruck” by the technology revolution, as Bill puts it. His views have evolved though (by the way: we definitely share his enthusiasm for human ingenuity – but it needs a free unhampered market economy to flourish, and the funny money issued by modern-day central planners is the anti-thesis of a free market).

Photo credit: WSJ Live


“Money is not wealth,” he said. “It just measures wealth.”

Or as Steve Forbes (we met him there, too!) put it, money is supposed to be like a clock, reliably counting out the hours and minutes and seconds of the day.

But  the Fed pretends that money is real wealth. By trying to inject more money into the economy (by making it easier and cheaper to borrow)… it is as though it was slowing the clock to make the day seem longer!

“After 1970,” writes Gilder in his new book, The Scandal of Money, “the financial industry nearly tripled its share of the U.S. economy, and private credit nearly tripled its share of advanced-country GDP.”


Scandal of MoneyGilder’s book on the fiancialization of the economy under the fiat money system


The feds’ new faux dollar distorted the entire system. The inflation of credit drove up asset prices and greatly rewarded the people who traded in them. It also rewarded the people who owned them – the rich. The top 10% of wage earners took 33% of national income in 1971. By 2010, they were taking nearly 50 cents on every dollar.

Meanwhile, the median wage for an American man of working age has dropped 27%. For the man without any college education, the loss is catastrophic: He has lost nearly half his real income.

“A failure of capitalism,” say the Nobel-winning economists, the policy wonks, the best-selling authors, and former Treasury secretaries. But this post-1971 system wasn’t capitalism. It was central planning and cronyism.

And its measuring stick – the dollar – was no longer real money.  It was phony.

Stay tuned…


Chart by: St. Louis Federal Reserve Research


Chart and image captions by PT


The above article originally appeared at the Diary of a Rogue Economist, written for Bonner & Partners. Bill Bonner founded Agora, Inc in 1978. It has since grown into one of the largest independent newsletter publishing companies in the world. He has also written three New York Times bestselling books, Financial Reckoning Day, Empire of Debt and Mobs, Messiahs and Markets.




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7 Responses to “How the “Faux Dollar” Destroyed Capitalism”

  • JohnnyZ:

    Only because the banks are allowed to issue counterfeit money in the form of credit / deposits and pretend in front of the average citizen it ain’t so, does not change the fact that the average citizen uses this money and thus it adds to his purchasing power. So it should be counted in the money supply. Period.

  • The Fed doesn’t have a dollar of its own, all the Fed and the banking system generate is asset backed, debt based credit denominated in dollars. All legal tenders dollars belong to the U.S.G. The amount of legal tender dollars in circulation is the true money supply, the private debt based credit generated by the Fed and the banks, while counted as if it is money, does not add to the nation’s money supply. simply because it’s not a legal tender.

    There is no law anywhere that grants to the Fed or the banks the authority to create money, let alone U.S. sovereign legal tender. The only laws associated with the Fed’s and banking system’s private debt based credit, resides in the debts incurred with its use.

    The legal tender’s expansion follows private credit expansion, it does not lead it. Reserves do not add to the money supply and their expansion also follows private credit expansion, they do not lead it.

    The legal tender’s status as a monetary medium of exchange is a product of U.S. Law.

    The notion that Fed and bankster generated private asset backed debt based credit is a medium of exchange, which defies all logic and facts to the contrary, is the product of Fed fostered rote hearsay and dumbass economists who don’t know the difference between money and credit.

    • TheLege:

      I’ve read the above several times and I think you’re terribly confused. To say that the banks and the Fed do not influence the money supply is absurd. Whether digital ‘money’ is officially classified as legal tender or not is utterly irrelevant. If digital money can be used to buy real goods then it is money and it is part of the money supply. Period.

      Put another way: if every individual and corporation in the U.S. decided to withdraw what they had in their bank accounts i.e. their didital balances in hard cash, then they’d be entitled to (ignoring the logistics of such an event, such as the actual amount of cash in circulation). Everyone knows the amount of ‘legal tender’ in circulation is a fraction of the actual money as deposits.

      • You’re projecting your cognitive dissonance. As I stated, the Fed and the banks influence the growth of the actual money supply as a consequence of their expansion of private debt based credit. There is no such thing as “digital money”, it is just figments of overactive imaginations. What you’re actually using is your bank’s line of credit to make purchases. What the bank owes in payment for those purchases made by you using its line of credit, is the legal tender money, which it does not have, all thanks to fractional reserve banking.

        There is no ‘money’ in any ‘deposit’ account of any type anywhere in all of westernized banking. They are all credited accounts, book keeping entries denoting the amounts of money owed to each account holder by the bank. In other words, they are all bank debt, and it’s been that way for over 400 years of banking, the practice hasn’t changed, regardless the actual monetary unit in use. The banks put the deposited money in their vault and credit the depositor with the amount. That, is your ‘deposit’ account with the bank, it’s not ‘digital money’, it’s a record of bank debt. So, the correct question becomes; do the banks have the money in their vaults to cover the credited deposit accounts? Answer; no they don’t. And that’s why the FDIC was created, to cover that difference between the actual money held by the bank and its debt to its depositors as expressed by their credited deposit accounts in the event of a bank run. The Icelandic bank failures are perfect illustrations of these points.

        See Iceland’s banking collapse as illustrative of these points.

        Banks make pseudo-loans in the form of pseudo-deposits, see the above explanation of deposit accounts. Banks never loan money.

        Now, if you wish to continue believing that a bank’s debt to you is your money, that’s your prerogative.

  • Bill Bonner hasn’t a clue, he just repeats the same false narrative over and over again.

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