Smart Goldsmiths......and Government

Man Utd lost last night. Owell. Burnley fought well, credits to them.

So where were we... Oh yeah, the goldsmiths. The goldsmiths kept gold for the population. They lent their own gold to the merchants, charging interest. Remember gold is something which stores value. It is used to facilitate exchanges of goods. It has REAL, intrinsic value. Anyway, here's my best effort to re-enact a possible scene at a goldsmith in the past (note: any resemblance of the characters to real people is just a coincidence):


Goldsmith JM has 1000oz gold of his own. Rosy deposited her 1000oz of gold for a small fee, and in return, she received a paper receipt from JM. The paper receipt can be redeemed for the gold anytime.


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Along came little Appu, to get a loan for his new business venture. JM lent out his own 1000oz of gold to Appu, charging interest. Now JM technically did not have anymore gold to lend out.

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Next, Ms.Cheng came along, to borrow 1000oz for her new business venture. But alas, JM has no more gold of his own to loan out! (note: please ignore Rosy's gold first. Now we're just talking about the goldsmith loaning out his very own gold. Think about it. He can't just loan another person's belonging to someone else)


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JM thought of a brilliant idea. He tricked Ms. Cheng into thinking that he actually did have 1000oz of gold! Ms. Cheng did not know that JM had lent out his own gold to Appu.

What is happening here? JM issued 2 paper receipts of 1000oz gold each. These 2 paper receipts were only backed by his own 1000oz of REAL, physical gold. He had effectively DILUTED Appu's and Rosy's 1000oz receipts by half (ignoring Rosy's gold)! Appu's 1000oz receipt is now worth only 500oz gold. And he had no idea about this. And what's more, JM gets to earn interest from this phantom gold receipt that he had issued to Ms. Cheng. He is gonna earn free money out of money that he created out of thin air. Sounds absurd? Wait, JM got even smarter.

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Now, even Rosy, the depositor of 1000oz gold, would get her 1000oz receipt diluted. Effectively, the 3 paper receipts out there are worth 2000 oz gold.
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So there you go. Currency supply can be easily and artificially inflated. The governments and kings, and our modern central banks are synonymous to the goldsmith. Governments want control of the money, because it is key to controlling an empire. Unfortunately, for every dollar that the govt/central banks print, all the existing dollars out there got devalued. This is a hidden tax on the unsuspecting population, in the form of inflation. This is essentially govts and banks stealing wealth away from the population. And it can get VERY costly for the population, as I'm gonna explain in my subsequent posts.

Throughout history, rulers of empires had tried to control money. They tried to cheat gold. They printed tons of money out of thin air for themselves, because they needed to fund costly wars and expand their empires. But 100% of the time, all the empires that attempted this eventually saw their currencies fail. This had happened throughout history, starting from the first recorded inflation in the world in Athens in 400+ B.C. The Free Market will always revert back to gold, something that is physical, real and has intrinsic value. When this happens, paper currency always go back to its real value: the value of paper. I'm not lying. Look here: http://dollardaze.org/blog/?post_id=107

In my next post, I will talk more about the events that happened in the past 100years. About how the world tried and tested various economic systems. Our current economic system is about 40 years old. There is gonna be a big transfer of wealth in the foreseeable future when the population starts to see bigger and bigger cracks in this system. When the flaws are finally apparent to the population. In fact, it has already started.

Till then, stay tuned!



Jin