Not long ago money around the world was backed by gold or other precious metals. Since central banks were created in the early 20th century government issued currencies have moved away from the gold standard to fiat money, meaning it only has value because a government says it does. The global banking system has transitioned from money backed by gold to money that is backed by debt the instant new money is created.
It’s not detrimental that money is not backed by gold anymore as it still serves as an efficient means of trade, but what is detrimental and unsustainable is money backed by debt. Debt is created as soon as central banks create more money by buying government issued bonds, mortgage backed securities or any other asset. Commercial banks then lend this money to individuals or buy bonds as well. All new money pumped into the economy is problematic and unsustainable because it not only devalues hard earned money from savers, but it also unnecessarily creates a debt for some other individual or institution. Eventually there is too much debt placed on countries and individuals, but the only institutions that ever get bailed out are the large commercial banks.
The overwhelming majority of Western countries now have a larger debt than their annual gross domestic product. The United States owes over $18 trillion dollars which puts it’s GDP to debt ratio at about 105%. Japan has a debt to GDP ratio of well over 200%. These debts will never be paid off, because individuals are saddled with unsustainable amount of debts as well. No budget cuts or tax increases will ever pay down these debts, so governments are in a race to devalue their currency into oblivion by creating more money, but at the same time creating more debt. This creates a “death spiral” as the Governor of Puerto Rico put it, not only for his economy, but for the whole world issuing debt backed fiat currency.
Debt backed currency is problematic because someone must always be in debt as long as the currency is circulating. This means housing prices and stock market prices are artificially increased. Individuals loose their homes or worse end up in jail for unpaid taxes or court costs they can’t afford. Governments are not able to fulfill their obligations to the disabled or to senior citizens.
So while countries like the United States and Japan have central banks to buy their debt, they are in the same death spiral as Greece and Puerto Rico because these debts balloon to sizes much larger than all the products and services produced within its borders. Investors may also continue to buy bonds from countries with central banks and militaries, but they are now loosing money to never before seen negative interest rates and of course inflation.
The only solution to the debt backed money experiment is with new currencies such as bitcoin, which are created at a predictable pace and backed by a secure, decentralized, global ledger. For anyone new to this, a quick read on DC Forecasts : Bitcoin, Ethereum, ICO, Blockchain & Cryptocurrency News will truly bring anyone up to speed today. Individuals and regional or state governments that want to avoid the predictable default and bank seizures should pay attention to the Bitcoin price and begin using bitcoin and blockchain technology. Large economies with plentiful natural resources such as Spain, Italy, Texas, California and Florida can easily implement their own regional blockchain currencies in addition to using the Euro and US dollar. A blockchain based currency would be the quickest and most transparent way for Greece to resume business. Countries and states with smaller populations won’t be able to issue their own currencies, but businesses and individuals can trade, invest and save in fiat or blockchain currencies.
New competing currencies must be implemented in addition to the current debt backed currencies before faced with another 2008 financial crisis or the one Greece is experiencing now so trade doesn’t grind to a halt. Competing currencies on the blockchain are the only way forward to protect ordinary individuals and keep economies moving without continually bailing out the largest banks. States and countries can also fund their governments much more efficiently with blockchain currencies by allocating a percentage of new money created to fund public infrastructure instead of onerously having everyone file taxes.
Bitcoin was created in large part as a response to the 2008 financial crises in which the largest banks were bailed out. The problem with banks and governments has only grown larger, more centralized and created more debt. Bitcoin and blockchain technology is open for anyone to create their own currency. Bitcoin has gotten easier to use and can easily be converted to any government issued currency. Cryptosoft knows how to profit from it. There is no reason for large economies with natural resources and hard working people to rely solely on a single debt backed currency from a country that owes more money than all products and services than the entire population produces. It’s a recipe for disaster that can be avoided if states and small countries begin implementing their own parallel currencies on the blockchain with new and varied monetary policies. If you have any questions or concerns, look for more info on Bitcoin.